HP’s Commercial Offerings Offset Impact Of Industry-Wide Sluggishness On Fiscal Q2 Results

HP Inc. (NYSE:HPQ) reported its fiscal Q2 results late last week, with the company beating consensus estimates. Notably, HP’s revenues remained unchanged year-on-year – something the company’s management attributed to an industry-wide component supply shortage as well as to shortcomings in its forecasting systems. In addition, the management revealed the potential impact of the U.S.-China tariff hikes on its business, and is working towards minimizing this impact.

We continue to maintain our fair value estimate of $29 per share for the company. Our interactive dashboard on HP’s Q2 Performance outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Also, you will find more Trefis technology company data here.

A Quick Look At HP’s Revenue Sources

HP makes money selling personal computing devices, printing products and related technology solutions. There are two main segments of HP’s revenue ($57.1 billion in 2018)

• Personal systems group ($36.4 billion in 2018, 64% of total revenue): Segment revenue is derived from sale of notebooks ($22.5 billion in 2018), desktops ($11.6 billion in 2018) and workstations, handhelds and others ($2.2 billion in 2018).
• Imaging and printing group ($20.8 billion in 2018, 36% of total revenue): Segment revenue is derived from sale of hardware ($7.2 billion 2018) and supplies ($13.6 billion in 2018).

Revenue trends and Q2 performance

• Personal systems group added $6.3 billion over fiscal 2016-2018 (CAGR of 10%) with notebooks revenue growing by $5.6 billion over this period (CAGR of 15%), desktop revenue growing by $1.6 billion (CAGR of 8%), and workstation and other revenues declining by $803 million.
  • HP has been focusing on premium form factors (convertible notebooks) and Device as a Service to offer contractual solutions.
  • In Q2, segment revenue grew to $8.9 billion (+2% y-o-y)
• Imaging and printing group added $2.5 billion over fiscal 2016-2018 (CAGR of 7%) with hardware revenue growing by $845 million (CAGR of 6%) and supplies revenue growing by $1.7 billion (CAGR of 7%).
  • HP has been focusing on contractual solutions, Graphics and 3D printing.
  • In Q2, segment revenue declined marginally to $5.1 billion (-2% y-o-y)
• Total revenue was flat at $14 billion.

We forecast HP’s EPS figure for full-year 2019 to be $2.08. Taken together with our forward P/E multiple of 14x for the company, this works out to a $29 per share price estimate for the company’s stock, which is 45% ahead of the current market price.

Do not agree with our forecast? Create your own price forecast for HP by changing the base inputs (blue dots) on our interactive dashboard.