On Wednesday, JPMorgan made an adjustment to its financial outlook for HP, Inc. (NYSE:HPQ), lowering the price target to $40.00 from the previous $41.00. Despite this change, the firm maintains an Overweight rating on the stock. The revision comes as HP faces increased headwinds due to competitive pricing dynamics in the PC market, which have been exacerbated by the company's efforts to offset rising memory costs through higher product pricing.
According to the analyst from JPMorgan, the PC market's near-term challenges are widely recognized, but HP's situation is particularly strained as it navigates these competitive pricing dynamics. This situation contributed to a more significant miss in earnings per share (EPS) expectations for the first fiscal quarter guidance. Concerns are mounting about the company's margin recovery through fiscal year 2025 (FY25), especially given that these projections hinge on a recovery in PC unit sales and broader adoption of AI-enabled PCs.
HP's management remains optimistic about the potential for PC market recovery by FY25, bolstered by a projected rebound in 2025 following delays and an anticipated surge in pent-up demand after 2024. Expectations also include a higher uptake of AI PCs by enterprise customers.
Despite this positive outlook for the future, current limited data points do not suggest an imminent turnaround, leading to forecasts of seasonal revenue outcomes for the first fiscal quarter that will result in below-seasonal earnings due to margin pressures in the Personal Systems/PC segment and the effects of increased compensation accruals.
The analyst's commentary highlights the delicate balance HP must maintain as it manages the immediate impacts of market conditions while looking ahead to potential recovery and growth opportunities in the coming years. The firm's analysis suggests that while the long-term prospects may be favorable, the road to FY25 will likely be marked by continued financial challenges for HP.
In other recent news, HP Inc (NYSE:HPQ). reported a steady growth in its Q4 2024 financial results, with a 2% increase in revenue year-over-year and a 3% rise in non-GAAP EPS to $0.93. A significant part of the company's strategic focus has been on AI-powered technologies, which is reflected in its strong commercial performance and a notable presence in the AI PC market. HP Inc. generated $3.3 billion in free cash flow and returned nearly all of it to shareholders.
The company's AI PCs accounted for over 15% of Q4 shipments, demonstrating substantial investments in AI. Furthermore, HP has formed partnerships with companies such as Zoom (NASDAQ:ZM) to enhance its AI capabilities. Looking ahead to fiscal 2025, HP expects revenue growth to align with the mid-single-digit growth anticipated in the PC market, while the print market may experience a low single-digit decline.
The company's non-GAAP EPS guidance for fiscal 2025 is set between $3.45 and $3.75, with a stronger performance anticipated in the second half of the year. Despite a flat full-year revenue and an expected decline in the print market, HP Inc. remains committed to leveraging AI for efficiency and security, and is confident in its strategic focus and operational capabilities to deliver solid growth in fiscal 2025.
InvestingPro Insights
Despite JPMorgan's lowered price target, recent InvestingPro data suggests HP Inc. (NYSE:HPQ) maintains a strong market position with a market capitalization of $37.68 billion. The company's P/E ratio of 13.63 indicates it may be undervalued relative to its peers, aligning with JPMorgan's maintained Overweight rating.
InvestingPro Tips highlight that HP has been aggressively buying back shares and offers a high shareholder yield, which could be seen as management's confidence in the company's long-term prospects despite current market challenges. Additionally, HP has raised its dividend for 7 consecutive years, demonstrating a commitment to returning value to shareholders even in a competitive environment.
The company's revenue for the last twelve months stands at $53.32 billion, with a slight decline of 2.48% year-over-year. However, the quarterly revenue growth of 2.45% suggests a potential turnaround, which could support management's optimistic outlook for FY25.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips for HP, providing deeper insights into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.