HP Inc Impresses In Q2, But Concerns Remain

Mostly Positive Q2 Results

Analyst Tim Long noted that the second-quarter results were mostly positive, with revenue growth at both segments exceeding expectations. Notwithstanding the easier year-over-year comparison, the analyst sees positive momentum on the company's goal of stabilizing the Supplies business, which saw top-line growth of 2 percent year over year.

However, the analyst noted that operating margin was below expectations due to higher operating expenditure, which nullified the impact of better gross margin.

Cautious On Opportunities In 2 Core Business

BMO Capital Markets noted that HP's earnings per share guidance of $0.40–$0.43 was in line with its estimate and the consensus. The firm indicated that the full-year 2017 guidance was revised to $1.59–$1.66, with the mid-point increasing by $0.02. The free cash flow guidance was unchanged, the firm noted.

"Despite HPQ having performed well in the challenging PC market, we remain cautious on further opportunities in the two core businesses," the firm said.

"Our FY18 operating margin model remains at the bottom of management's long-term 8–10 percent operating model."

Remain On The Sidelines

The firm said it remains sidelined on HP due to its belief that challenges will prevail in both end markets. Additionally, the firm said it expects margins near the low end of management's long-term view.

Raising Estimates, Price Target

BMO Capital Markets raised its 2017 earnings per share estimate to $1.65 from $1.60 and increased its 2018 earnings per share estimate to $1.77 from $1.68.

As such, BMO Capital Markets maintains its Market Perform rating on the shares of HP but raised its price target to $20 from $17.

At the time of writing, shares of HP were down 3.84 percent at $18.28.