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On Thursday, UBS released a revised outlook for HP, Inc. (NYSE:HPQ), with a significant reduction in the company’s price target to $26.00 from the previous $37.00, while maintaining a Neutral rating. The adjustment comes in response to HP’s latest financial results, which, despite showcasing a solid revenue of $53.88 billion, revealed that increased tariffs and commodity costs had severely impacted the company’s Printing Systems (PS) margins. This situation led to a miss in earnings per share (EPS) and a substantial downward revision of the fiscal year 2025 EPS guidance. According to InvestingPro data, HP currently trades at a P/E ratio of 9.81x, suggesting a relatively modest valuation compared to its peers.
The UBS analyst noted that the revised EPS forecast and the subsequent impact on HP’s share price are expected to be considerable. Despite the stock trading at 8 times the updated next twelve months (NTM) EPS estimate of $3.15 in after-market trading—a significant discount to the market—shares are anticipated to stay within a narrow range due to the absence of immediate catalysts that could drive growth, even as this EPS revision is likely the last. InvestingPro analysis reveals that HP maintains a strong dividend yield of 4.26% and has maintained dividend payments for 55 consecutive years, offering some stability for income-focused investors.
The report also highlighted a tempered outlook for the PC market, which is now expected to experience low-single-digit growth in calendar year 2025, a downgrade from the previously forecasted 4-5% growth. This change in projection is attributed to inconsistent tariff proposals that have led to disruptions in demand across Enterprise and Consumer markets.
Consequently, UBS has reduced its fiscal year 2025 EPS estimate for HP to $3.02, down from $3.54, positioning it at the lower end of HP’s updated guidance range of $3.00 to $3.30. The analyst expressed caution about declaring a low point for HP’s shares, citing ongoing tariff uncertainties in China, South East Asia, and Latin America as reasons for maintaining a neutral stance on the stock. InvestingPro analysis suggests the stock is currently undervalued, with a robust free cash flow yield of 13% and an overall Financial Health score rated as "GOOD." For deeper insights into HP’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, HP Inc. reported mixed financial results for the second quarter of fiscal year 2025. The company achieved a revenue of $13.2 billion, surpassing the expected $13.07 billion, but its earnings per share (EPS) fell short at $0.71, below the forecasted $0.79. This performance was affected by higher-than-anticipated tariff costs, impacting HP’s profitability despite the revenue beat. In response, HP has revised its fiscal year 2025 EPS outlook to a range of $3.00 to $3.30, alongside a reduction in free cash flow guidance by approximately $600 million.
Analysts have adjusted their price targets for HP, with Evercore ISI lowering it to $29, Citi to $27.50, JPMorgan to $27, and Goldman Sachs to $26, all maintaining various ratings from Neutral to Overweight. These changes reflect concerns about the macroeconomic environment and HP’s ongoing challenges in mitigating tariff impacts. HP’s management is actively addressing these issues through supply chain adjustments and cost-saving initiatives, including the Future Ready program aiming for at least $2 billion in savings by the end of fiscal year 2025.
Despite the challenges, HP has seen growth in its Personal Systems segment, with an 8% year-over-year increase driven by strong demand in commercial PC sales. However, the Printing division experienced a 3% decline in constant currency. The company is also focusing on innovation, launching an AI-driven PC portfolio and diversifying its manufacturing locations to mitigate risks. As HP navigates these hurdles, it anticipates improvements in operating margins and expects to stabilize EPS and free cash flow in the latter half of fiscal year 2025.
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