Citi Reiterates On Hewlett-Packard Following Call With VP Of Tech Supply

In a report published Thursday, Citi analyst Jim Suva reiterated a Buy rating and $40.00 price target on Hewlett-Packard HPQ following a conference call. On May 29, Suva hosted an investor conference call with Antoine Simonnet, the VP of Technology Supply Chain & Personal Systems Global Operations. The analyst reported Simonnet was optimistic on additional supply chain enhancements. In the call, Suva remarked on four main takeaways. Citi first noted the “enormity” of the company's supply chain efforts. Every minute, Hewlett-Packard ships 105 personal computers, 88 printers and 880 ink & toner cartridges. In his second takeaway, the analyst emphasized the company's streamlined enhancements leading to lower inventory and strong cash flow. Adding onto this point, he included the financial impact of the enhancements on EPS in his third point. Suva wrote, “The financial impact of these efforts is impressive with a positive EPS impact of $0.04-$0.07 for PCs and $0.07-$0.11 for Printers for FY14.” In Citi's concluding takeaway, Suva focused on the discrepancy of printing inventory. In the call, Simonnet said printing inventory is at “all-time low levels.” In the recent conference call on May 24, though, the CFO and CEO of Hewlett-Packard reported elevated printing inventory is due to soft EMEA demand. Suva concluded, “We see meaningful upside to share price given 1) cost savings are underappreciated, particularly after the announcement on additional headcount cuts, 2) upside to free cash flow estimates, 3) low downside risk to revenue and margin expectations for FY14-15, and 4) valuation is compelling at 8-9x reflecting negative sentiment with less than 45% Buy ratings.”