On Monday, JPMorgan (NYSE:JPM) reiterated its Overweight rating on HP Inc. (NYSE:HPQ) with a steady price target of $34.00, highlighting the stock's underperformance compared to the S&P 500 year-to-date. HP shares have risen by 4%, which trails behind the S&P 500's 11% increase. The firm noted that HP's shares are currently trading at a slight discount to its historical valuation and at a significant discount relative to its peers in the hardware sector.
Despite the underperformance, recent months have shown promising signs from original design manufacturers (ODMs), chip suppliers, and channel partners, indicating a potential recovery in the PC market.
This improvement is expected to contribute to a modest upside in the second fiscal quarter of 2024, ending in April, and support a more substantial recovery in the second half of the year. These developments could lead investors to draw parallels with the modest but stronger recovery seen in the high-end smartphone market.
JPMorgan has raised its revenue and earnings forecasts for HP, now expecting flat revenue year-over-year in fiscal year 2024 and earnings per share to reach the mid-point of the company's full-year outlook. The analyst firm believes that the risk-reward balance for HP is becoming increasingly favorable, especially given that the stock is trading at similar levels to a year ago, despite clearer signs of an imminent PC market rebound.
The analyst firm also pointed out the potential for HP to benefit from the AI-Edge market, which could provide additional upside in terms of pricing and volumes.
The comparison to other AI opportunities, which are currently trading at significant premiums, could enhance investor interest in HP shares. The $34 price target set by JPMorgan is based on a target multiple of 9x.
InvestingPro Insights
In light of JPMorgan's positive outlook on HP Inc. (NYSE:HPQ), recent data from InvestingPro further illuminates the company's financial landscape. HPQ's P/E ratio currently stands at a modest 9.04, indicating a lower valuation compared to near-term earnings growth potential. This aligns with JPMorgan's note on HP's shares trading at a discount to historical valuations. Additionally, the company boasts a high shareholder yield and has a track record of raising its dividend for 7 consecutive years, with a current dividend yield of 3.53%. This could be particularly appealing to income-focused investors.
Moreover, HP's status as a prominent player in the Technology Hardware, Storage & Peripherals industry is supported by its consistent dividend payments over the last 54 years, underscoring its financial stability and commitment to shareholder returns. While the company has experienced a revenue decline of 11.02% over the last twelve months as of Q1 2024, analysts predict profitability this year, which may be an encouraging sign for potential recovery and growth.
For those interested in diving deeper into HP's financial health and future prospects, InvestingPro offers additional insights. With an array of PRONEWS24 InvestingPro Tips available, investors can gain a more comprehensive understanding of the company's performance and make more informed decisions. To explore these tips and take advantage of a special offer, use coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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