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On Thursday, Goldman Sachs analyst Michael Ng adjusted the price target for HP, Inc. (NYSE:HPQ) to $26.00, down from the previous target of $33.00, while maintaining a Neutral rating on the stock. This revision follows HP’s reported earnings for the second fiscal quarter of 2025, which fell short of expectations. The company posted earnings per share (EPS) of $0.71, missing the Goldman Sachs and consensus estimates of $0.82 and $0.80, respectively. According to InvestingPro data, HP maintains a GOOD financial health score and trades at a P/E ratio of 9.8x, with the stock currently appearing undervalued based on Fair Value analysis.
The earnings miss was primarily attributed to a lower-than-expected Personal Systems EBIT (earnings before interest and taxes) margin of 4.5%, compared to Goldman Sachs’ estimate of 5.7%. This shortfall was due to higher-than-anticipated tariff costs, which had an adverse $0.12 impact on the quarter’s EPS. This figure was significantly higher than the roughly $0.04 impact forecasted by HP’s guidance issued on February 27th, which had only accounted for 10% tariffs on goods from China.
Despite the challenges faced in the Personal Systems segment, HP saw some positive developments. The company experienced a 7% year-over-year growth in Personal Systems revenue, which aligned with expectations and benefited from a slight demand pull-in. Moreover, HP gained market share in more profitable categories, resulting in an improvement in sequential EBIT margins within its Print division to 19.5%, surpassing the targeted range of 16-19%. As a prominent player in the Technology Hardware industry with $53.88B in revenue, HP continues to reward shareholders with a 4.26% dividend yield. InvestingPro analysis reveals the company has maintained dividend payments for 55 consecutive years, demonstrating strong commitment to shareholder returns.
However, HP’s outlook for the industry’s PC unit growth in fiscal year 2025 has been tempered, now expecting low single-digit percentage (LSD%) growth as opposed to the mid-single-digit percentage (MSD%) growth projected earlier. This revision is due to increasing macroeconomic uncertainty. The lower Personal Systems margins were partly due to increased commodity and tariff costs, although HP has made efforts to reprice products and reduce costs to offset these issues.
Goldman Sachs noted that HP is optimistic about mitigating the current tariffs in place by the fourth fiscal quarter, with an expectation to have no products from China sold in the US by June, which could sequentially improve margins. Nevertheless, the analyst highlighted that the unpredictable tariff environment could continue to pressure Personal System margins and consumer PC demand, posing a challenge to HP’s goal of achieving above-industry PC shipment growth for fiscal year 2025, especially when contrasted with the IDC outlook of a 4.1% increase in PC unit growth. InvestingPro identifies additional strengths, including aggressive share buybacks and strong free cash flow yield, with 8 more exclusive ProTips available to subscribers. For deeper insights into HP’s valuation and growth prospects, access the comprehensive Pro Research Report, part of the analysis available for 1,400+ top US stocks.
In other recent news, HP Inc. reported its financial results for the second quarter of 2025, revealing a mixed performance. The company’s earnings per share (EPS) fell short of analyst expectations, coming in at $0.71 compared to the forecast of $0.79. However, revenue exceeded projections, reaching $13.2 billion against the expected $13.07 billion. Despite the revenue beat, HP’s stock experienced a significant decline in aftermarket trading. The company is taking steps to mitigate tariff-related costs, which have impacted its operating margin, by diversifying its manufacturing locations. HP has launched an AI-driven PC portfolio, aiming for a significant portion of its PC business to come from this segment by the end of the year. Analysts are watching HP’s strategic investments in AI and manufacturing diversification as potential drivers for long-term growth. The company has also projected non-GAAP EPS for fiscal year 2025 to be between $3.00 and $3.30, with expectations to mitigate tariff costs by the fourth quarter.
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