Hewlett-Packard Earnings: A Prelude to a Crash?

by Chris Johnson and Jon Lewis | November 17, 2011 8:30 am

Next week’s abridged earnings calendar contains a few big names, one of which is Hewlett-Packard (NYSE:HPQ[1]). The embattled PC/printer giant reports on Monday (Nov. 21) after the close.

Analysts expect HPQ to earn $1.13 per share, a 15% decline from a year ago. That would mark the first year-over-year decline in profits since May 2009. Revenue is also expected to decline.

HPQ hasn’t missed an earnings estimate in more than six years (as far back as our data goes), which leads one to question why analysts consistently come up short. The problem has been stock performance after earnings, which has been abysmal of late. The stock has dropped an average of 12% in just the one day following the past three reports.

On the charts, the stock has rallied more than 25% off the early-October low. But the shares have now run headlong into their declining 100-day moving average. The last time the stock closed a day above this trendline came before HPQ reported earnings on Feb. 22.

Note the gaps in the chart below, which all came on the day after earnings.

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HPQ is battling a number of fundamental headwinds that have knocked its competitors lower after their earnings reports. Rivals IBM (NYSE:IBM[3]) and Dell (NASDAQ:DELL[4]) both declined after coming up short on revenue in their recent reports.

While expectations for those companies were higher, HPQ still needs to impress with its earnings and outlook to keep its current rally intact. We believe the odds are against that happening. Buy the HPQ Dec 28 Put for around $1.60.

Source URL: https://investorplace.com/2011/11/hewlett-packard-earnings-a-prelude-to-a-crash-hpq/

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