At times, it is prudent to retain certain stocks that have enough potential but are weighed down by tough market conditions. HP Inc. (HPQ - Free Report) seems to be one such stock, which investors need to hold on to if they are looking to reap long-term benefits. Though the stock faces a few headwinds at the moment, these are transitory in nature. There is enough scope for this Zacks Rank #3 (Hold) company to rebound in the long run.
In fact, HP stock has gained 30.8% year to date, substantially outperforming the 19% rally of the industry it belongs to.
Further, shares of the company went up almost 3% yesterday and to eventually close at $19.41.
Aspects In Favor of HP
It seems that the spin-off from Hewlett Packard Enterprise Company (HPE - Free Report) , along with restructuring initiatives, is apparently paying off at last for HP, as evident from its last few quarterly results. The company not only reported better-than-expected results for third-quarter fiscal 2017, but also continued revenue growth for the fourth consecutive quarter after several quarters of decline. The quarter also marked back-to-back growth for both Personal Systems and Print segments in the same quarter since 2010.
HP also raised lower-end earnings guidance range for fiscal 2017. The company now anticipates non-GAAP earnings per share from continuing operations in the band of $1.63-$1.66 (previously $1.59-$1.66). The Zacks Consensus Estimate is currently pegged at $1.64 per share.
HP’s efforts to turn around its business have been commendable. The company is working on product innovation, differentiation and enhancing the capabilities of its printing business to stabilize the top line.
Per Gartner, HP managed to regain the top position by replacing Lenovo in the second quarter. Further, this was the fifth consecutive quarter of year-over-year shipment growth for the company, following five back-to-back quarters of underperformance. Going forward, the research firm IDC’s forward looking statement indicates that the PC industry is moving toward stabilization. The aforementioned positive comments on the PC market will benefit the business prospects of HP.
With the start of shipping A3 multifunction printers to more than 80 countries, which covers all its key markets, HP can revive its printing business and grab a bigger share in the inkjet printer market. Further, the acquisition of Samsung’s printing business is anticipated to support the development and manufacturing of printers.
The company exhibits a VGM Style Score of A and has an expected EPS growth rate of 2.9%. Notably, the stock has delivered positive earnings surprises in the trailing four quarters with an average beat of 1.9%.
From a valuation perspective, the stock looks attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. HP currently trades at a forward P/E of 11.8x compared with the industry group average of 15.0x.
However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from the likes of International Business Machines (IBM - Free Report) and Apple (AAPL - Free Report) adds to woes.
We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat amid difficult times. Hence, we suggest that investors hold on to the stock for the time being.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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