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HP Inc (HPQ) Shares Jump on Positive Fiscal 2018 Outlook


The world’s largest PC manufacturer, HP Inc. HPQ, provided fiscal 2018 outlook in its recent Securities Analyst Meeting. The company also provided an update on its turnaround plan and future strategy.

Following the announcement, the company’s shares surged nearly 2.5% in after-hours trading.

HP’s 2018 Projections

For fiscal 2018, HP projects non-GAAP earnings from continuing operations in the range of $1.74-$1.84 per share (mid-point: $1.79 per share). The Zacks Consensus Estimate is pegged at $1.75 per share. GAAP earnings per share from continuing operations are expected to be in the range of $1.69-$1.79 per share.

Free cash flow is projected to be approximately $3 billion for full year 2018. The company anticipates returning up to 50-70% of free cash flow to shareholders via dividends and share repurchase in fiscal 2018. Moreover, the company expects to increase quarterly dividends by 5%.

Factors in Favor of HP

Notably, the stock has had a remarkable run so far this year. In the year-to-date period, HP has surged 37.5%, outperforming 34.4% growth recorded by its industry.

According to Dion Weisler, President and CEO, HP, “We are well positioned to lead in the core, accelerate growth opportunities, like A3 and Graphics in Printing and commercial transformation in Personal Systems, and capture the future with 3D Printing in plastics and now metals.”

The much awaited pending acquisition of Samsung Electronics’ printer business, for $1.1 billion, recently crossed another milestone after China's Ministry of Commerce gave approval for the transaction, per media sources. This is another factor that provided a boost to the share price movement.

The acquisition is a strategic move by HP, as it will expand the company’s printing business as Samsung's printer business has more than 6,500 printing patents. Additionally, the deal will bring in additional 1,300 researchers and engineers, which will support development and manufacturing of HP printers, going forward.

The spin-off from its parent, Hewlett-Packard Company, along with restructuring initiatives, such as focus on product innovations, pricing, marketing and sales activities, divestment of non-core assets and cutting jobs to lower costs, are apparently paying off at last. Although, worldwide PC shipments declined in the third quarter, but, HP retained its leading position during the quarter, per Gartner. Further, this was the sixth consecutive quarter of year-over-year shipment growth for the company, following five back-to-back quarters of underperformance.

Gartner also stated that among the top five vendors, only HP recorded growth in PC shipment, while Dell, Apple AAPL, Lenovo and Asus witnessed declines during the third quarter. With a market share of 30.5%, HP witnessed year-over-year growth of 4.4% in PC shipment.

The company is also trying to enhance 3D printing business capabilities. It should be noted that even though HP has been operating in this space for almost five years now, the company is way behind 3D Systems Corporation DDD and Stratasys Ltd. SSYS.

Consequently, in order to fortify its presence in this space, last year, HP unveiled its Jet Fusion 3D Printing Solution with two models to choose from — 4200 and 3200. Unlike 3D Systems and Stratasys, which targets all kinds of consumers, HP emphasizes only on industrial markets due to its ability to afford a premium range of 3D printing solutions.

To satisfy customers in this space, HP has collaborated with various companies like Siemens, BMW, Nike Inc. and Autodesk Inc., with an aim to develop more advanced 3D printing technologies for a wide array of industrial use.

HP’s efforts to revive printing business have been commendable. Looking HP’s strategies yielding satisfactory results, we feel the company can turnaround the printing business, and claim a bigger share in the inkjet as well as 3D printer market.

Bottom Line

These favorable forecasts along with HP’s effort to boost earnings going ahead, raises investors’ confidence.

However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from the likes of International Business Machines and Apple add to its woes.

HP currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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