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Why HP Inc Stock (HPQ) Deserves a Place in Your Portfolio Now

Improving PC trends lead the way for this successful spinoff

HP Inc (NYSE:HPQ) is one of the two companies which came into existence post the split from the parent company – Hewlett-Packard Company – in Nov 2015. The other company which came into existence after the split is Hewlett Packard Enterprise Co (NYSE:HPE).

HPQ stock has been clocking solid returns since then and gained approximately 28.9%, outperforming the Zacks categorized Computer-Mini industry’s return of 19.4% during the same time frame.

The major part of the rally has been witnessed this year.

In the year, so far, the stock has gained 20%.

What’s Driving HPQ Stock?

Post the split, HP adopted a strategy of focusing on product innovation and differentiation, as well as on enhancing the capabilities of its printing business, which will help stabilize the top line.

Over the past one year, the company launched various models under its PC product lines of EliteBook, Spectre and Pavilion Wave. The impact of these launches was reflected clearly in the company’s last four earnings releases, wherein the Personal Systems segment witnessed year-over-year improvement after several quarters.

Keeping the trend alive, at the CES 2017, HP unveiled Spectre 13 – the thinnest and most powerful iteration of laptops – anticipated to enhance web experience and provide high-quality visuals.

The company’s efforts to revamp the printing business have also been commendable. It should be noted that HP had signed a deal to acquire Samsung Electronics’ printer business in 2016, for $1.05 billion. The acquisition is a strategic fit for HP as it will expand the company’s printing business, with the addition of 6,500-plus printing patents owned by Samsung.

In addition, the company is now focusing on boosting its 3D printing business capabilities.

However, unlike 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS), which target all kinds of consumers, HP is emphasizing only on industrial markets because of their ability to afford a premium range of 3D printing solutions. It should be noted that even though HP has been operating in this space for almost five years now, it still lags behind 3D Systems and Stratasys.

On the cost front too, HP has taken remarkable steps, which include the divestment of its content management software tools and Customer Communications Management (CCM) assets to Open Text Corporation and elimination of around 3,000–4,000 jobs.

The company expects the divestment of CCM to reduce cost and enhance productivity. This, in turn, would help the company to enhance its profitability.

The job cuts are anticipated to generate annualized cost savings of approximately $200–$300 million from fiscal 2020.

The Bottom Line: HPQ Stock Deserves a Spot in Your Portfolio 

We believe that HP’s massive restructuring moves will complement its focus on core businesses, and enable it to expand its share in the PC and Printing market.

Furthermore, per the latest reports of two independent research firms — Gartner Inc. and International Data Corporation — the downtrend in PC shipments became rather modest in first-quarter 2017 compared with the previous quarters.

Therefore, we believe an improving trend in PC shipments will benefit the business prospects of companies like HP Inc.

Furthermore, HP has a VGM Style Score of “A”. We note that our VGM score highlights the determining elements in a stock that can push the stock price higher. We can essentially filter out the negatives and focus on the positives which drive price.

Therefore, in our opinion, the stock deserves a place in investor’s portfolio. Currently, HPQ carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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HP Inc. (HPQ): Free Stock Analysis Report

3D Systems Corporation (DDD): Free Stock Analysis Report

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Stratasys, Ltd. (SSYS): Free Stock Analysis Report

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