HPQ: Stay Away From Bleeding Hewlett-Packard Stock

Hewlett-Packard is fighting an uphill battle in more ways than one right now

Hewlett-Packard (HPQ) has been trading sideways over the last 12 months or so but did get a little relief last week. I tweeted about HPQ stock after Hewlett-Packard reported earnings, noting that shares had moved higher in after-hours trading after earnings came in slightly higher than analysts had predicted.

hpqThat “earnings snapshot,” as I called it, comes with an important lesson for investors, though: Don’t be fooled by snapshots. Despite the small bump and small earnings beat, Hewlett-Packard stock has been in the red in more ways than one lately.

A quick sampling for you:

  • While shares have more or less broken even over the last year, zooming in on 2015 we see an ugly 16% slide.
  • In the most recent earnings report, that earnings beat still represented a slight year-over-year decline.
  • Cash flow from operations also declined, being cut in half from $3 billion in last year’s quarter to $1.5 billion this quarter.
  • Revenue tallied $25.5 billion versus $27.3 billion a year ago.
  • Segment by segment wasn’t any prettier: Personal Systems suffered a 2% decline, Printing revenue fell 7%, the Enterprise Group declined 1%, Enterprise Services revenue fell 16% … OK, you get the point.

But the even worse news is: It’s not just backward-looking numbers that should give you a pause. Hewlett-Packard’s earnings guidance was also moving in the wrong direction. HPQ expects earnings of between $3.53 to $3.73 per share for fiscal 2015 versus the consensus of $3.64 per share. Meanwhile, the consensus just for the final quarter of the fiscal year has also been shaved by 2 pennies over the last three months.

Even analyst Rod Hall with J.P. Morgan, who rates HPQ  stock as “Overweight” and was optimistic heading into the earnings report, said his firm believes “the desktop PC market remains particularly challenged.” As Barron’s cited: “We are concerned that ongoing weakness in the market could translate into weak personal systems revenue for HP.”

Speaking of the PC market, Hewlett-Packard does have plans to split its company into two parts … and lower-than-expected expenses for separating the personal computer and printer business played a role in recent HPQ stock investor optimism. Also playing a role in said optimism is likely the sweet 2.1% dividend yield investors get from snagging some shares of Hewlett-Packard stock.

But at the end of the day, those incremental savings are being driven by a pending split that’s being driven by a mega-trend working against HPQ stock. That hardly makes Hewlett-Packard stock a game changer, despite the payout, and hardly one of the best places to park your cash.

Don’t be fooled by a small bump higher or incremental earnings beat — stay away from HPQ.

Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.

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