- Wednesday, October 16, 2024
In the midst of a selloff in the technology sector and the broader stock market, HP Inc.'s stock stood out as a gainer on Tuesday. This followed a double upgrade from an analyst who presented a bullish scenario for the personal computer and printer maker ahead of next week's investor meeting.
Market Performance
While the Technology Select Sector SPDR ETF and the Nasdaq Composite experienced declines of 1.7%, HP's shares rose by 2.5% in afternoon trading. Similarly, the S&P 500 index declined by 1.3%.
Analyst Upgrade and Projections
B. of A. analyst Wamsi Mohan upgraded HP by two notches to buy from underperform. Additionally, he increased his stock price target from $25 to $33. Mohan anticipates that the company's free-cash flow will reach its lowest point in fiscal 2023, driving subsequent growth through an improved PC outlook and decreased restructuring costs.
Implications of HP's Analyst Meeting
During HP's upcoming analyst meeting on October 10, Mohan expects the company to guide fiscal 2023 adjusted earnings per share to be in the range of $3.40 to $3.60, along with free cash flow exceeding $3.5 billion. Currently, analysts surveyed by FactSet project earnings per share of $3.30 and free cash flow of $3.1 billion for the fiscal year ending in October.
Capital Returns and Dividends
Mohan also predicts that HP will resume capital returns, with management stating that "100% of free cash flow" will be returned to shareholders. Additionally, dividends are expected to grow "in-line with earnings."
Analyst Upgrades HP Stock Due to Valuation and Dividend
An analyst has upgraded HP stock based on its "attractive valuation" and high dividend. The stock's current dividend yield of 3.99% surpasses the SPDR technology ETF's yield of 0.86% and the implied yield for the S&P 500 of 1.64%.
Despite a 2.1% decline in HP shares this year, the technology ETF has experienced a substantial rally of 30.8%, while the S&P 500 has gained 10.2%.
The analyst acknowledges several risks to his bullish view, including potential share sales by Warren Buffett's Berkshire Hathaway Inc., weak demand in China, PC price wars, macroeconomic headwinds, and favorable foreign currency exchange rates for Japanese competitors.
In September, Berkshire revealed that it had sold off 5.5 million shares of HP. There were concerns that Buffett might utilize the Oct. 10 analyst meeting to sell more.
Additionally, HP shares faced pressure at the end of August due to mixed results in the company's earnings report and a cautious outlook. Earlier, HP had forecasted fourth-quarter earnings between 85 cents and 97 cents a share, slightly diverging from analysts' average prediction of 95 cents a share. Currently, analysts surveyed by FactSet expect fourth-quarter earnings of 90 cents a share.
Before this upgrade, the stock had received five buy ratings, 11 hold ratings, and two sell ratings, with an average price target of $30.12, according to FactSet data.
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