Hewlett-Packard Company (NYSE:HPQ) reports fiscal first quarter earnings Tuesday after the closing bell. Will the recent HPQ stock rally continue or fizzle out after it reports? Its red-hot run in the last year will certainly put shares to the test.
HPQ stock is up more than 27% in the last year, nearly double the 14% gains of the S&P 500 during that time. CEO Meg Whitman’s valiant efforts to turn around the PC-maker have shown early signs of working, and HPQ stock’s 2014 gain of more than 42% earned her a spot on InvestorPlace‘s Best CEOs of 2014 list.
What to Expect from HPQ Earnings in Q1 … and Beyond
In Hewlett-Packard’s 2014 annual report, HPQ CEO Meg Whitman highlights the importance of 2015 at the get-go:
“Fiscal 2015 will be a defining year for HP. Our challenge — and our opportunity — is to take our performance to the next level, while executing the separation. We are determined not to skip a beat in fiscal 2015.”
Rhetoric aside, analysts don’t expect eye-popping HPQ stock earnings in the first quarter. In fact, Wall Street expects revenue to fall by nearly 3% to $27.3 billion in the period, and for earnings per share to inch up a penny to 91 cents.
What HPQ stock investors should be more closely focused on is the individual performances of its two large segments: the consumer-facing PC and printing segment and the business-facing enterprise segment. HP decided to split the two divisions into two publicly traded companies back in October; the split should be complete by the end of October 2015.
The PC and printing business, which will be called HP Inc., is clearly the less attractive of the two segments, despite the fact that PC sales staged a slight recovery in the fourth quarter of 2014. I mean, when I say “slight recovery,” PC sales rose a measly 1% last quarter.
Hardly what an HPQ stock investor would want to count on as an engine for future growth.
And while HP may not subversively pre-install adware on its own computers like Leveno Group Limited (ADR) (OTCMKTS:LNVGY), there’s plenty of competition in the slowing PC industry. Apple Inc. (NASDAQ:AAPL) has much of the high-end market, but Chromebooks, the disruptively affordable computers running the Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) Chrome OS, are starting to dominate the K-12 education market.
There’s Gold in Them Thar Clouds
That’s why the much more exciting part of HPQ stock is the enterprise half of the business, which will be called Hewlett-Packard Enterprise and will see current CEO Meg Whitman at the helm when it splits from its boring twin.
Gunning after Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) by attempting to woo some of the brightest minds in cloud-computing, HPQ stock investors should look for some improvement in its enterprise-related revenue this quarter. In the fourth year of a five-year turnaround, each passing quarter plays a vital role in giving investors hope for the future.
Helion, Hewlett-Packard’s aggregation of cloud products and services, is the real diamond in the rough for HPQ stock. IDC projects that “public IT cloud services spending will reach $127 billion in 2018,” according to the research firm.
With the big data analytics market already at an estimated $125 billion this year, Helion has blockbuster long-term potential. While I don’t necessarily expect HP earnings to progress by leaps and bounds in just a quarter, a deceleration of the revenue declines the enterprise area suffered in 2014 would be a nice place to start.
As of this writing John Divine was long shares of AAPL, GOOG and GOOGL. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
