Why did HP Inc rise 28% in the last three months?

US PC and printer maker HP Inc. (NYSE: HPQ) is scheduled to report results for the third quarter of fiscal 2020 after market close on Thursday 27 August 2020.

Below, we highlight three key stock fundamentals that investors should consider ahead of HP Inc’s upcoming earnings report.

HP Inc’s stock hit a six-month high in August

HP Inc’s share price has rallied as much as 28% since the start of June 2020, with investors keeping bullish on the stock even amid concerns of a global recession.

On 11 August, the company’s share price was able to top the US$19 mark for the first time in six months.

Share price has declined slightly since then, and last traded for US$18.27 a share on Friday 21 August.

The stock’s steady rise in the last couple of months had coincided with HP Inc’s dividend announcement in late June, solid shipment growth in Q2 of 2020, as well as the US tech sector’s boom during this pandemic season.

On 24 June 2020, HP Inc’s board of directors declared a cash dividend of US$0.1762 per common share, 10% higher than the pay-out of US$0.16 in the same period a year ago. In the subsequent day, Dell shares surged 7.7%.

Additionally, while many small and medium businesses have been adversely impacted by Covid-19, US tech giants like HP Inc have reversely experienced a surge in demand for their products and services.

Research company Gartner also found in its second quarter survey that HP Inc was the world’s second largest PC vendor in Q2 2020, with 24.9% of total market share.

PC shipments also increased 17.1% year-on-year for HP Inc, the second highest on the list.

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HPQ rated a ‘hold’ by Wall Street analysts

Across the board, HPQ currently has a consensus rating of ‘hold’ from 17 Wall Street brokers, based on Bloomberg data.

The stock has also received an average 12-month share price target of US$18.06 per share, according to the same poll.

This represents a small downside of 1.1% from the last traded price, indicating that the stock is currently trading above its fair market value.

In terms of specific price estimates, JP Morgan equity researchers have rated the HP Inc stock ‘neutral’ alongside a share price target of US$21.

Meanwhile, Cowen and Bernstein brokers priced their estimates at US$18 per share respectively, with the latter firm cutting their targets from US$24 on the back of lower print revenue estimates this year.

Deutsche Bank recommended that existing investors hold onto their HP Inc assets, citing more upsides for the company’s July-ending quarter.

Their valuation of US$18 per share is predicated on the aforementioned Gartner and IDC PC results, which saw HP Inc grow 17%, versus 4% for market leader Lenovo and even for third placed Dell.

Analysts had found that ‘the HPQ-specific implications were that bullish that we feel the need to provide some thoughts on what they could mean for HPQ’.

HPQ’s sales expected to fall 9.2% year-on-year in Q2

Analysts polled by Bloomberg have given a mean adjusted non-GAAP earning per share (EPS) estimate of US$0.431 per share against expected revenues of US$13.26 billion for the hardware giant’s Q2.

The projected revenue represents a 9.2% year-on-year decrease from Q3 2019, but a quarterly increase of 6.3% from Q2 2020.

Bloomberg Intelligence analyst Marina Girgis wrote that the laptop segment may see an 8% shipment declines in the third and fourth quarters, after having expanded 34% in the second quarter.

As such, she foresees net sales for Q3 and Q4 coming in lower than street projections at US$12.9 billion and US$14 billion respectively, alongside an EPS of US$0.44 and US$0.55.

‘Our scenario analysis is modestly higher than consensus amid a healthier fiscal 2021, yet we only see 1% sales expansion, driven by 3% laptop sales growth and minus 1% to zero sales growth in Printing,’ said Girgis.

For existing shareholders, it is also worth noting that the company’s reported adjusted EPS surpassed consensus projections for the last six straight quarters, while revenue exceeded expectations for three of the last five quarters.

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