HP Inc Is Down Since Its Earnings Report: Can HPQ Rebound?

It has been about a month since the last earnings report for HP Inc. (NYSE:HPQ). HPQ Shares have lost about 3.5% in that time frame, underperforming the market.

HP Inc Is Down Since Its Earnings Report: Can HPQ Rebound?Will the recent negative trend continue leading up to the stock’s next earnings release, or is HPQ stock due for a breakout?

Before we dive into how investors and analysts have reacted of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

HP Tops Q2 Earnings & Revenues, Raises Guidance

HP released its second-quarter fiscal 2017 earnings yesterday, after splitting from Hewlett-Packard Company. The company reported better-than-expected results for the second quarter. Its top and bottom lines surpassed the Zacks Consensus Estimate.

The company reported non-GAAP earnings of 40 cents per share, which came ahead of the Zacks Consensus Estimate by a penny. However, earnings decreased from the year-ago figure of 41 cents per share.

The Quarter in Detail

HP’s total revenue increased 6.9% year over year to $12.385 billion and outpaced the Zacks Consensus Estimate of $11.942 billion. The better-than-expected top-line performance was driven mainly by strength in the Personal System and Printing segments along with the successful launch of new products.

According to Dion Weisler, President and CEO, HP Inc., “This was a breakthrough quarter for HP, and marks the first time both Personal Systems and Print have grown in the same quarter since 2010.”

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The Personal Systems segment garnered revenues of $7.662 billion, up 10% year over year.  Commercial revenues increased 7%, while Consumer revenues went up by 16%. The company witnessed a 5% rise in total shipments driven by a 12% increase in Notebook unit shipment. Desktops unit shipments were down 6% on a year-over-year basis.

Printing revenues were up 2% year over year to $4.743 billion, primarily due to a 2% increase in supplies revenues. HP’s total hardware unit sales increased 4% owing to a rise of 6% in Commercial hardware units and a 3% increment in Consumer hardware units.

Revenues from the Americas contributed 45% of total revenue, up 5% on a y/y basis. EMEA revenues were up 7% on a y/y basis and contributed 34% of total revenue. Revenues from the Asia Pacific region increased 11% y/y, contributing 21% of total revenue.

Non-GAAP gross margin was down 20 basis points (bps) on a year-over-year basis to 19.2% due to higher cost of sales. Total adjusted operating expenses increased 6.9% year over year to $1.436 billion. Non-GAAP operating margin from continuing operations contracted by 20 bps to 7.6%. The contraction can be attributed to unfavorable foreign currency impact and higher operating expenses.

HP’s non-GAAP net income from continuing operations came in at $685 million or 40 cents per share compared with $702 million or 41 cents reported a year ago.

Let’s Review the HPQ Balance Sheet and Cash Flow

HP ended the fiscal second quarter with cash and cash equivalents of $6.223 billion compared with $6.331 billion in the previous quarter. The company had long-term debt of $6.710 billion compared with $6.688 billion last quarter.

The company generated cash flow of $455 million from operational activities during the quarter. HP repurchased shares worth $223 million and paid dividends worth $224 million, in the same time frame.

HP’s Guidance is Raised 

For fiscal third quarter, HP projects non-GAAP earnings in a range of 40 cents to 43 cents per share (mid-point: 41.5 cents per share).

HP raised its fiscal 2017 earnings guidance. The company anticipates non-GAAP earnings per share in the band of $1.59–$1.66 (previously $1.55–$1.65).

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum.

There have been five moves higher in the last two months.

HP Inc. Price and Consensus

HP Inc. Price and Consensus | HP Inc. Quote

HPQ’s VGM Scores

At this time, HP’s stock has a nice Growth Score of ‘B’, a grade with the same score on the momentum front. The stock was allocated a grade of ‘A’ on the value side, putting it in the top 20% for this investment strategy.

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Overall, the stock has an aggregate VGM Score of ‘A’. If you aren’t focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

The Outlook For HPQ Stock: In-Line Returns For the Near Future 

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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