HP Inc (NYSE:HPQ) — This manufacturer of personal computers, systems and printers is a market share leader. Standard & Poor’s rated the stock a four-star buy with a price objective of $19 on Nov. 23, an upward revision of $2.
The revision is based on HP’s October-Q4 earnings per share of 36 cents and a sales increase of 2%. It raised HP’s FY 2017 (Oct) EPS estimate to $1.59 and FY 2018 to $1.62. However, as a result of a late, after the close, report yesterday, many research desks may be taking another look at this leader.
The PC market improved sales during the holiday shopping period by a significant amount. HP shipped 15.3 million PCs during the period which is 6.6% better than the same period last year, and increased its market share to 21.7%. This increase is undoubtedly the result of better marketing, and when that is coupled with a strong balance sheet and high free cash flow generation, shareholders could benefit from a significant increase in cash.
Before yesterday’s report, S&P’s target of $19 was based on a P/E of 11.7X to their FY 2018 EPS estimate. I expect a re-evaluation of both earnings and price targets.
HPQ bottomed in February 2016 at $9.02 (close). In less than one year it climbed to a high of $16-plus in a well-defined bull market recovery channel. During the advance, it triggered multiple buy signals from my internal indicator, the CBR, and within the last 10 days flashed twin CBR buy signals.
Despite profit-taking, shown on the volume line as red bars, the stock rebounded shortly thereafter. MACD is arching up and another day’s advance will probably result in a buy signal from this indicator. Thus, buy HPQ at $15 for a four-month trade to $22, for a proposed gain of over 45%.
