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Despite better-than-expected fourth-quarter results reported by Hewlett-Packard Co. (HPQ - Analyst Report) or H-P, we reiterate our Neutral recommendation on the company as it provided a less-than-encouraging guidance.

Why the Reiteration?

H-P reported strong fourth-quarter top- and bottom-line results, although year-over-year comparisons remained unexciting. Moreover, H-P’s first-quarter 2014 guidance remained tepid.

H-P expects its non-GAAP earnings for the coming quarter to range between 82 cents and 86 cents per share and that for fiscal 2014 to be within $3.55 to $3.75. The Zacks Consensus Estimate for the first quarter and fiscal 2014 are pegged at 85 cents and $3.65, respectively. Moreover, H-P expects revenues from Personal Systems to decline further due to higher commodity costs. The company also forecasts revenues from Enterprise Group to decline sequentially.

Nonetheless, H-P expects to gain traction in converged storage and networking and converged infrastructure. Moreover, H-P’s shift to a high-margin software and services business is expected to boost results in the long term.  H-P’s decision to take a software-and-service centric approach is appreciable.

Additionally, H-P has benefited from the restructuring initiatives. In fiscal 2013, the company saved approximately $2 billion in labor costs. It expects to save another $1.1 billion in 2014. The company’s operating expenses have decreased 2.9% year over year in fiscal 2013 due to savings from the labor restructuring initiative and better alignment of costs to revenues.

However, we remain concerned due to the continuing macroeconomic challenges, sluggish PC sales, tepid IT spending and stiff competition. Notably, as per data provided by IDC, PC shipments contracted 5.6% on a year-over-year basis to 82.2 million units in the fourth quarter of 2013. However, the research firm stated that the PC market in developed economies, such as the U.S., appeared to be stabilizing, with tablet cannibalization tapering off.

Currently, H-P has a Zacks Rank #3 (Hold). Investors can also consider stocks such as Western Digital (WDC - Analyst Report), Broadridge Financial Solutions (BR - Snapshot Report) and Accenture (ACN - Analyst Report). While Western Digital and Broadridge Financial carry a Zacks Rank #1 (Strong Buy), Accenture has a Zacks Rank #2 (Buy).

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