Will HP Inc (HPQ) — the former consumer-oriented PC side of the company formerly known Hewlett-Packard — finally offer shareholders reason for hope after the closing bell rings on Wednesday? That’s when the struggling technology giant is slated to report last quarter’s numbers.
Investors understandably have their doubts.
The company’s first quarterly report as a publicly traded entity (since its November split with the enterprise side of the business) posted in February was lackluster. HP met earnings estimates, but income as well as revenue were down by double digits.
Neither PC nor printer sales seem to have been reignited in the meantime.
In other words, owners of HPQ stock are headed into the release knowing they’re facing a headwind.
HPQ Earnings Preview
As of the latest look, HP is expected to have earned 38 cents per share on revenue of $11.73 billion last quarter, its second fiscal quarter of the year. At one point, HP had offered guidance of between 35 and 40 cents per share of HPQ stock.
Year-over-year comparisons are difficult to make, as a year ago the company had yet to split. The recent environment doesn’t look terribly encouraging though. In the first calendar quarter of 2016, IDC reported PC shipments fell more than 11%, hitting HP where it hurts the most.
The good news: The waning PC market may finally hit its low in the middle of 2016, and will stabilize in the latter half of the year headed into 2017. Even so growth rates are expected to remain minimal.
To that end, analysts currently think HP will earn 41 cents per share in the quarter currently underway, and is on pace to earn $1.59 per share for the full fiscal year. That outlook implies measurable sequential earnings growth over the course of the current year, which in turn implies some semblance of revenue growth.
Any changes to the company’s guidance could drive the stock significantly higher or lower, as HPQ stock is one that the market has kept on the fence for months, unsure if the glass is half empty or half full.
3 Things to Think About
While the numbers matter more than anything else for HP stock right now, there are some clear story-based elements current and would-be owners will want to keep a handle on before, during and after the second-quarter earnings report. They are:
1. 3D Printing
After months of planning, designing, and testing, HP finally (almost) has a 3D printer portfolio … they’ll officially become available for purchase later this year. Working prototypes are already in use though.
They’re impressive machines to be sure. The jet fusion technology and voxel-level detail underscore the fact that these printers can print a solid object up to ten times faster than similar printers from competitors.
What remains to be seen, however, is just how much demand there really is for 3D printers with a six-figure price tag. The company is making a big bet here.
2. Innovation
Calling a spade a spade, HP has done a relatively poor job of innovating over the past several years.
That’s not to say it has done none. Most of its innovations were simply iterations and revamps of existing products though. It has inexplicably continued to rely on PCs, for instance, as a core business line even though the deterioration of the PC industry has been underway for years.
To that end, though it remains to be seen exactly how it may translate into new products or significant improvements of existing ones, it has set aside funds to invest in virtual reality, artificial intelligence and the Internet of Things. HP will need something novel from those ventures if it’s ever to thrive again.
3. Laptops
While discussions of the implosion of the PC market tacitly include laptop sales, the industry isn’t dead … it’s just shrinking. There’s still revenue to be reaped.
The trick to growth is gaining market share.
But HP isn’t in a position to do that? Take a look at HP’s recent laptop launches. Though not “innovative”, many of them are highly competitive choices for laptop shoppers. The EliteBook Folio G1 is a legitimate threat to the MacBook, the Spectre 13.3 is the world’s thinnest-ever laptop and HP has even waded back into PC gaming waters with a rekindled and well-received Omen gaming laptop.
Point being, HP is at least working on becoming the name to beat again within the PC/laptop world. It could grow even if the market doesn’t.
Bottom Line for HPQ Stock
While most investors are rightfully viewing HPQ stock in a “can’t get much worse” light, that doesn’t inherently mean things will be “good” or even “better” in the foreseeable future. In other words, while HP isn’t necessarily a bad company, owning HPQ stock may impose something of an opportunity cost, in that the capital could be better used for other opportunities.
Still, HP is a name worth keeping on watchlists, as a single-digit price-to-earnings ratio says the sellers have overdone it. A couple of surprisingly good quarters should be taken at face value, indicating the company has found its mojo again.
There’s no need to rush in though. It will be a process.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
