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On Thursday, TD Cowen maintained a Hold rating on HP, Inc. (NYSE: NYSE:HPQ) but reduced the price target from $38.00 to $28.00. The adjustment follows HP’s announcement of a lowered financial outlook for fiscal year 2025, citing increased tariff-related costs and potential macroeconomic headwinds that could dampen demand. According to InvestingPro analysis, HP appears undervalued at its current market capitalization of $24.03 billion, trading at an attractive P/E ratio of 9.06x.
Krish Sankar of TD Cowen noted that HP has decreased its projections for earnings per share (EPS) and free cash flow (FCF) midpoints by 13% and 18%, respectively. Despite these challenges, InvestingPro data shows HP maintains a strong free cash flow yield of 14% and offers investors a substantial 4.26% dividend yield. In response to these challenges, the company has expedited the relocation of its PC production operations away from China. Additionally, HP has implemented price increases and further cost restructuring measures to mitigate the impact of the tariffs and macroeconomic factors.
Despite the downward revision in HP’s long-term financial forecast, Sankar highlighted some positive aspects in the company’s fiscal second-quarter performance. There was steady year-over-year growth in artificial intelligence (AI) and commercial PCs. Moreover, the operating margin (OpM) in HP’s Print segment remained at the higher end of the expected range, indicating some resilience amid the broader challenges. InvestingPro analysis reveals HP maintains a "GOOD" Financial Health Score of 2.58, with particularly strong scores in profitability and relative value metrics.
The analyst also mentioned the possibility of the Personal Systems (PS) operating margin normalizing by the end of fiscal year 2025. This suggests that HP could see some stabilization in its business operations as it adjusts to the external pressures and internal changes currently being made.
HP’s strategic moves, including the shift in production and the restructuring efforts, are aimed at navigating through the increased costs and uncertain demand. The company’s efforts to maintain profitability and operational efficiency in a challenging economic environment are reflected in the mixed outlook provided by TD Cowen’s analysis.
In other recent news, HP, Inc. has faced a series of analyst downgrades following its latest earnings report. Morgan Stanley (NYSE:MS) reduced its price target for HP to $26 from $29, citing challenges such as increased tariff costs and a decline in PC demand impacting earnings per share (EPS) expectations. UBS also cut its price target to $26 from $37 after HP’s financial results showed a miss in EPS due to higher tariffs and commodity costs affecting margins. Evercore ISI adjusted its target to $29 from $32, noting mixed performance with a slight revenue beat but EPS falling short of expectations.
Citi lowered its target to $27.50 from $29, maintaining a Neutral rating, and highlighted HP’s weaker-than-expected earnings and the subdued outlook for the PC industry. Similarly, JPMorgan decreased its target to $27 from $30, pointing to macroeconomic challenges affecting HP’s revenue expectations for the latter half of fiscal year 2025. These analysts have noted HP’s efforts to mitigate tariff impacts through supply chain adjustments and cost-cutting strategies.
Despite these efforts, analysts expressed concerns about the company’s ability to fully neutralize these headwinds before the fourth quarter of fiscal year 2025. HP’s revised EPS guidance for fiscal year 2025 now ranges from $3.00 to $3.30, reflecting the impact of these challenges. The company anticipates improvements in operating margins and EPS in the fourth quarter, driven by its Future Ready program and supply chain strategies.
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