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Can PC and Printer Businesses Aid HP's (HPQ) Q4 Earnings?

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HP Inc. (HPQ - Free Report) is set to report fourth-quarter fiscal 2018 results on Nov 29.

In the trailing four reported quarters, the company’s results surpassed the Zacks Consensus Estimate twice and came in line on two other occasions, delivering average positive surprise of 4.57%.

Looking back at the last reported quarter, the company delivered stellar results wherein both the top and the bottom line beat the Zacks Consensus Estimate and increased year over year. Better-than-expected revenue performance was driven mainly by strength in the Personal System and Printing segments.

Moreover, buoyed by an improving market share across the PC and Printer businesses, HP raised its non-GAAP earnings guidance for fiscal 2018.

What to Expect in Q4

HP projects non-GAAP earnings from continuing operations in the range of 52-55 cents per share. The Zacks Consensus Estimate is pegged at 54 cents, indicating a year-over-year increase of 22.7%.

For the fiscal fourth quarter, the Zacks Consensus Estimate for revenues is pegged at $15.22 billion, reflecting a year-over-year rise of 9.3%.

HP Inc. Price and EPS Surprise

HP Inc. Price and EPS Surprise | HP Inc. Quote

So, let’s see how things are shaping up prior to this announcement.

Factors at Play

HP’s PC segment is delivering an impressive performance wherein the year-over-year improvement in the last reported quarter can be attributed to growth in Commercial and Consumer revenues. The company’s focus on product innovation, differentiation and enhancement of the capabilities of its printing business to stabilize the top line is also a tailwind.

Holding the second spot among worldwide PC vendors in the September quarter, HP registered 6.2% growth in PC shipments and raised its market share to 21.8% from 20.5% in the year-ago period.

HP’s results in the fiscal fourth quarter are likely to benefit from a rise in desktop shipment on the back of strong demand among corporate buyers. Moreover, growing popularity of gaming devices is also an upside in the domestic market.

The Zacks Consensus Estimate for PC segment revenues stands at $9.82 billion for the fiscal fourth quarter, implying 8% year-over-year growth.

HP has been focusing on its profit-generating Printing Business for some time now. Higher Supplies revenues and robust growth in Commercial hardware units, stemming from the inclusion of recently-acquired S-Print business, are the company’s key growth drivers.

Additionally, the company has been gaining traction in the 3D printing market, driven by its innovative and expanding portfolio, which makes us optimistic. During the quarter to be reported, the company launched an advanced 3D printing technology — HP Metal Jet — that aids cost-effective high volume manufacturing of production-grade metal parts.  

The consensus estimate for Print segment revenues is approximately $5.26 billion for the to-be-reported quarter, mirroring a 7.8% year-over-year improvement.

However, theglobal trade environment, currency volatility and industry component availability remain key challenges in the fiscal fourth quarter. Increasing overall component and logistic costs for Personal Systems coupled with rising material costs in the Printing segment are an overhang on the company’s margins.

Moreover, competition from the likes of Lenovo Group Ltd. (LNVGY - Free Report) , Dell and Apple (AAPL - Free Report) is another key concern. Notably, perboth IDC and Gartner, Lenovo clinched the top spot in the September quarter, reclaiming it from HP.

What Our Model Says

Our proven Zacks model clearly shows that a company with a top Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has high chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

HP carries a Zacks Rank #3 but has an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Key Pick

Here is a stock, which you may want to consider as our model shows that it has the right combination of elements to beat on earnings in the upcoming release:

Science Applications International Corporation (SAIC - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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