On Thursday, TD Cowen maintained a Hold rating on shares of HP Inc. (NYSE:HPQ) with a steady price target of $32.00. The firm's assessment followed HP's fiscal third-quarter earnings, which revealed results and forecasts slightly trailing behind market expectations.
The company's performance was notably affected by a weaker demand in the Printing segment, alongside increased price competition leading to a decline in operating margin by 170 basis points quarter over quarter.
The analysis highlighted that HP's PC demand remains stable, with AI-enabled PCs, which carry a 5-10% average selling price premium compared to non-AI models, expected to reach higher volume sales. In light of these developments, HP is accelerating its cost restructuring plans, aiming to sustain its free cash flow (FCF) target for fiscal year 2024, which is projected to be between $3.1 billion and $3.6 billion.
Moreover, HP has announced a new $10 billion share buyback program, which TD Cowen noted as a positive move. This authorization comes as part of the company's efforts to enhance shareholder value and demonstrate confidence in its financial strategy and long-term business plan.
Despite the challenges faced in the Printing segment, HP's commitment to cost restructuring and the introduction of AI PCs are seen as strategic efforts to maintain financial stability and growth. The new buyback program further underscores HP's proactive approach to managing its capital allocation and supporting its stock performance.
In other recent news, HP Inc. reported third-quarter 2024 earnings per share of $0.83, falling short of Goldman Sachs (NYSE:GS) and consensus estimates, primarily due to underperformance in its Print segment.
Despite this, the company saw a 2% year-over-year revenue increase, marking its first revenue growth in nine quarters, largely driven by its Personal Systems segment. Goldman Sachs maintained a neutral stance on HP following these developments.
In the Print segment, revenue dropped by 5% quarter over quarter, with margins at 17.3%, below the long-term target range of 16-19%. For the fourth fiscal quarter, HP anticipates a low to mid single-digit percentage increase in Print revenue, supported by industrial printing and growth in Supplies.
In contrast, the Personal Systems segment exceeded expectations, with HP projecting a low to mid single-digit percentage increase in revenue for the fourth fiscal quarter. The company also forecasted that over 10% of its PC shipments in the second half of fiscal 2024 will be AI-enabled.
HP slightly adjusted its fiscal 2024 EPS forecast, reducing the midpoint from $3.45 to $3.40 within the range of $3.35 to $3.45. The company reaffirmed its fiscal 2024 free cash flow forecast of $3.1 to $3.6 billion and its commitment to return 100% of free cash flow to shareholders. These are the latest developments for HP Inc.
InvestingPro Insights
As HP Inc. (NYSE:HPQ) navigates market challenges, InvestingPro data and tips provide a deeper understanding of the company's financial health and investment potential. With a market capitalization of $34.01 billion and a price-to-earnings (P/E) ratio standing at a competitive 12.19, HP appears to be trading at a reasonable valuation relative to its near-term earnings growth.
The company's commitment to shareholder returns is evident, boasting a high shareholder yield and a history of raising its dividend for 7 consecutive years, now maintaining dividend payments for 54 consecutive years. This aligns well with HP's new $10 billion share buyback program, highlighting the company's focus on enhancing shareholder value.
InvestingPro Tips suggest that HP is a prominent player in the Technology Hardware, Storage & Peripherals industry, which could benefit from the company's strategic efforts like the introduction of AI-enabled PCs. Despite a slight revenue decline over the last twelve months, as indicated by a -5.57% revenue growth, HP's valuation implies a strong free cash flow yield, which supports the company's FCF target for fiscal year 2024.
For investors considering HP as a potential addition to their portfolio, InvestingPro provides additional tips and metrics, including a fair value estimate, which can be found at https://www.investing.com/pro/HPQ. There are 10 more InvestingPro Tips available that can offer further insights into HP's investment profile.
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