On Thursday, HSBC downgraded shares of HP, Inc. (NYSE:HPQ) from Buy to Hold, adjusting the price target to $38 from $39. This decision follows the company's weaker-than-expected guidance for the first quarter of Fiscal Year 2025.
HSBC analysts cited significant commodity cost pressures within the PC segment as a key factor negatively affecting HP's operating margin. These cost pressures are anticipated to impact the company's performance throughout the first half of Fiscal Year 2025.
Despite the downgrade, HSBC acknowledged the presence of strong secular drivers in the PC industry. These include the ongoing PC refresh cycle, the transition to Windows 11, and the rising adoption of AI-enabled PCs. However, the benefits of these drivers are expected to become more pronounced in the second half of Fiscal Year 2025.
The analyst's commentary highlighted the immediate challenges HP faces due to increased input costs, which are likely to affect near-term profitability. The cautious stance taken by HSBC reflects these concerns, prompting the firm to revise its rating and price target for HP stock.
HP, Inc., a leading technology company, is navigating a period of increased commodity costs that are exerting pressure on its financial performance. The company is at a critical juncture where it must balance immediate cost challenges with the potential for future growth driven by industry trends and product cycles.
Investors and market watchers will be closely monitoring HP's performance in the upcoming quarters to see how the company adapts to these cost pressures and capitalizes on the growth opportunities outlined by HSBC. The updated guidance and the subsequent rating change by HSBC serve as a barometer for HP's near-term financial outlook.
In other recent news, HP Inc (NYSE:HPQ). has been the subject of both positive and cautious outlooks. TD Cowen increased its price target on HP shares to $39.00 from the previous $32.00, citing fiscal year 2025 earnings per share (EPS) outlook and free cash flow (FCF) growth expectations. The firm, however, maintained a Hold rating on the stock, indicating limited upside potential at the current time. This is mainly due to weakening demand for personal computers and a projected decline in the Printing segment.
Conversely, Citi maintained a Neutral rating but reduced its price target from $37.00 to $36.50, reflecting a slower than anticipated recovery in the PC market. The firm also noted that HP's projected EPS for the year is slightly below consensus estimates, coming in at $3.60 at the midpoint.
In terms of earnings, HP reported a 2% year-over-year rise in Q4 2024 revenue and a 3% growth in non-GAAP EPS to $0.93. The company also generated $3.3 billion in free cash flow, nearly all of which was returned to shareholders, and increased its annual dividend by 5% to $1.16 per share. AI PCs, which accounted for 15% of Q4 shipments, are expected to rise to 25% in fiscal 2025. Despite a projected decline in the print market, HP anticipates growth in the commercial PC market to outpace that of the consumer segment.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on HP's financial position and market performance. Despite the challenges highlighted by HSBC, HP maintains a relatively attractive valuation with a P/E ratio of 11.98, suggesting the stock may be undervalued compared to its earnings. This is further supported by an InvestingPro Tip indicating that HP's valuation implies a strong free cash flow yield.
HP's commitment to shareholder returns remains strong, with an InvestingPro Tip noting that management has been aggressively buying back shares. Additionally, the company boasts a dividend yield of 3.18% and has raised its dividend for 7 consecutive years, demonstrating a consistent focus on returning value to shareholders.
However, aligning with HSBC's concerns about cost pressures, an InvestingPro Tip reveals that HP suffers from weak gross profit margins. This is reflected in the company's gross profit margin of 22.07% for the last twelve months as of Q4 2024.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips on HP, providing a deeper understanding of the company's financial health and market position.
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