Citi: Risk-Reward Still Looks Attractive At HP Before Break-Up

In a report published Thursday, Citi analyst Jim Suva maintained a Buy rating and price target of $41 on Hewlett-Packard Company HPQ. The analyst expects the company to report its 3FQ revenue below the consensus, driven by softness in PC, printing and X-86 servers. However, the analyst also believes that this expectation is already reflected in the stock, given that the shares have been underperforming the market by over 10 percent since the 1FQ results were reported in late May. For 3FQ, Hewlett-Packard is expected to report its revenue below the consensus. In addition, weaker top-line is likely to pressurize operating margins, leading to an EPS marginally below the consensus as well. For the full year, the analyst expects the Street EPS consensus to be revised down to the guidance range. The analyst also expressed concern regarding Hewlett-Packard's ability to meets its FY15 FCF target, "given the working capital headwind from weaker PCs." Analyst Jim Suva also mentioned that one of the key focuses would be on the company providing an "update on any traction in new service bookings/pipeline, and margin recovery… a status update on the tax-free spin-off of HP Enterprise, and timing of an updated Form 10 with pro forma HPE balance sheet."