Hewlett-Packard (HPQ) Q2 Earnings: What to Expect
Hewlett-Packard (HPQ) is set to release second quarter fiscal 2022 results after Tuesday’s closing bell. While demand for personal computers are still solid, unit growth has slowed from the height of the pandemic. Investors want to know whether betting on HP stock is still the right play.
According to analyst Jim Suva at Citigroup, there might be a better opportunity after the earnings results. Citing, among others things, declining PC market due to rising supply chain challenges and Covid-related lockdowns in China, Suva recently downgraded Hewlett-Packard from a Buy rating to Neutral. Suva believes the company may suffer a 9% unit growth decline in this fiscal year, compared to prior expectations for flat unit growth.
“We believe unit mix will be skewed towards high-end models (Commercial, gaming) while Chromebooks (35-40 [million] units in [2021]) and low end consumer PCs will be most impacted as OEMs/ODMs prioritize higher margin unit mix,” Suva wrote in a note to clients. He lowered his price target to $38 from $40. It seems as if the pandemic-related tailwinds that millions of consumers across the globe to work and learn from home, needing better and faster computers, has run its course. A recent report for Gartner revealed that global PC shipments declined about 7% in the first quarter.
Worldwide PC shipments totaled 77.9 million units in the first quarter of 2022, Gartner reported. Of that total, Hewlett-Packard was steady in terms of market share with 20.4%, ahead of Dell (DELL) which secured the third place spot with a market share of 17.7%. Both companies trail Lenovo which secured the top spot at 23.4%. HP stock has nonetheless outperformed the market over the past year, rising 14% compared to the 3% decline in the S&P 500. On Tuesday investors will want to see evidence that not only is the growth sustainable, but HP can sustain the recovery in its stock with strong guidance.
For the three months that ended April, Wall Street expects Hewlett-Packard to earn $1.05 per share on revenue of $16.17 billion. This compares to the year-ago quarter when earnings came to 93 cents per share on revenue of $15.88 billion. For the full year, ending October, earnings are projected to rise 12% year over year to $4.25 per share, while full-year revenue of $65.58 billion would rise 3.3% year over year.
The supply chain’s impact, which weakened Chromebook sales, was most notable in the U.S., which suffered a 16% decline in overall PC shipments on a year-over-year basis. Of the 77.9 million units shipped in the first quarter Dell secured the top spot in the U.S. with shipments with 27.1% market share, while HP followed with 22.6% share, reported Gartner. Despite the slowing shipments, it’s nonetheless encouraging for HP that its share in the U.S. remains strong.
What’s more, the company’s execution continues to reflect the outperformance in the stock. Over the last 2 years, HP has beaten the Street’s profit estimates 100% of the time. IT’s likely for the reason that since the quarter began, EPS estimates have seen eleven upward revisions and only four downward revisions. In the first quarter, the company reported adjusted EPS of $1.10, beating estimates by 8 cents. Q1 revenue of $17 billion rose 9% year over year, topping forecasts by $480 million.
Whether HP stock can continue to outperform will depend on what the company says on Tuesday. Investors will want strong evidence that HP can sustain its recent revenue growth, particularly given that Q1 PC shipments have moderated.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.