RBC Previews HP's Upcoming Q2 Earnings

In a report published Tuesday, RBC Capital Markets analysts maintained a Sector Perform rating on Hewlett-Packard Company HPQ, with a price target of $38, ahead of the company's April quarter results. The analysts believe the "near-term bias is to the upside" with the upcoming earnings call expected to provide data-points indicating that the company's free cash flow is not getting worse. In the report RBC Capital Markets noted, "After last quarter's disappointing FCF guide of $3.5–4.0B, investors are laser focused on HP's ability to improve FCF toward "optimal" range of $6.5–7.0B…This EPS call should calm investor fears about further FCF degradation and quantify "dis-synergies" from separation (estimate $600– 800M) and HP's ability to offset this." The analysts expect the company to report $26.1B in revenue and EPS of $0.86 for the April quarter. "We maintain our estimate of $26.0B/$0.86 (sales flat q/q) vs. Street at $26.0B/$0.87," the analysts added. The company is expected to reiterate its FY15 guidance of $3.53-$3.73 EPS and $3.5-$4.0B in FCF. "FX headwinds, softness in China, account runoffs in Enterprise Services, and muted PC demand could limit growth. We see margin expansion offsetting weaker FY15 revenues, resulting in -3% y/y EPS declines," the report stated.