On Wednesday, JPMorgan made an adjustment to the price target for HP Inc. (NYSE:HPQ), bringing it down to $41.00 from the previous $42.00, while keeping an Overweight rating on the stock. The firm anticipates that HP will present near-term financial results that align with or are slightly below the consensus estimates of Wall Street. The focus remains on the company's guidance for FY25, as investors seek signs of a recovery in the PC market, despite recent challenges with PC volumes in the third calendar quarter.
HP's management is faced with the difficult task of determining the extent of a PC recovery to include in their FY25 guidance. JPMorgan points out that with HP's shares currently trading at 10 times the next twelve months' earnings, an in-line or softer report for the fourth fiscal quarter, primarily due to subdued PC volumes in the third calendar quarter, is not expected to significantly stir investor enthusiasm. This outlook is also tempered by awaiting clarity on potential tariffs and their impact.
The company is expected to continue prioritizing profitability initiatives across its Personal Systems and Print segments. These initiatives are projected to play a key role in FY25, potentially compensating for any shortcomings in the PC market recovery. Consequently, JPMorgan has slightly lowered its revenue forecast, especially for the first half of FY25, with a corresponding but less pronounced reduction in earnings estimates.
Despite the current low visibility into demand drivers for FY25, JPMorgan remains optimistic about HP's prospects. The firm's earnings forecast still incorporates high-single digit growth for FY25, contrasting with low-single digit growth in FY24, and is expected to be included in the company's full-year guidance.
This outlook is underpinned by the potential for revenue upsides from a macroeconomic recovery and AI PC adoption, a continued emphasis on profitability and margins, and a strong balance sheet that could support higher earnings expectations in future quarters once the immediate challenging operating environment is navigated.
In other recent news, HP Inc. has experienced a series of significant developments. The company has reported a fall in third-quarter 2024 earnings due to underperformance in its Print segment, despite a 2% year-over-year revenue increase. HP Inc. reaffirmed its fiscal 2024 free cash flow forecast of $3.1 to $3.6 billion and announced a new $10 billion share buyback program.
HP Inc. has made leadership changes with Tuan Tran stepping into the role of President of Technology and Innovation, and Anneliese Olson becoming the new President of Imaging, Printing & Solutions. In addition, the company acquired Vyopta, an Austin-based company specializing in analytics and monitoring for unified communications and collaboration networks, to expand its enterprise collaboration offerings.
HP Inc. has also introduced several AI-powered solutions and products, including HP Print AI, touted as the industry's first intelligent print experience. The company expanded its Workforce Experience Platform and introduced new services to enhance productivity and reduce IT downtime. Amid these developments, HP Inc. is involved in a legal case seeking up to $4 billion in damages from the estate of the late British billionaire Mike Lynch, related to HP's acquisition of the British tech company Autonomy.
InvestingPro Insights
To complement JPMorgan's analysis of HP Inc. (NYSE:HPQ), recent data from InvestingPro offers additional perspective on the company's financial health and market position. Despite the lowered price target, HP's current P/E ratio of 12.78 suggests the stock may be undervalued, especially when considering its adjusted P/E ratio of 11.21 for the last twelve months as of Q3 2024. This aligns with JPMorgan's view that the current share price, trading at 10 times next twelve months' earnings, might not fully reflect the company's potential.
InvestingPro Tips highlight that HP's management has been aggressively buying back shares, which could signal confidence in the company's future prospects. Additionally, HP boasts a high shareholder yield and has raised its dividend for 7 consecutive years, demonstrating a commitment to returning value to shareholders even in challenging market conditions.
These insights, along with HP's strong return over the last five years, suggest that the company may be well-positioned to weather near-term challenges in the PC market. Investors seeking more comprehensive analysis can access 13 additional InvestingPro Tips for HP, providing a deeper understanding of the company's financial stance and market outlook.
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