JPMorgan Cites Lack Of Catalysts In HP Downgrade

Shares of HP Inc HPQ have gained nearly 25 percent since the start of 2018 and now may be a good time for investors to take some of their profit off the table, at least according to JPMorgan.

The Analyst

JPMorgan's Paul Coster downgraded HP from Overweight to Neutral with a price target lifted from $28 to $29.

The Thesis

HP hosted its securities analyst day Wednesday where management's initial 2019 PF EPS guidance came in better than expected and the dividend payout was boosted by 15 percent, Coster said in a note. Beyond the headline numbers, there are a few reasons to no longer support a bullish stance on the stock.

The PC market has shown a double-digit growth rate over the past two years, but heading into next year the segment could suffer from component shortages, foreign exchange woes, and tariff uncertainty.

Meanwhile, HP guided at last year's presentation a 16 to 18 percent margin range fro the Print segment. But recent investments in the business and 3D printing initiatives along with other headwinds prompted management to revise its margin expectations to 16 percent over the long-term.

Shares of HP are trading at 11.4 times 2019 PF EPS estimates, which is an approximate two- turn premium versus the three-year average forward multiple of 9.6 times, the analyst wrote.

The stock is also trading at a modest but justifiable premium versus its peers at 8.6 times 2018 EBITDA estimates. Coupled with minimal signs of near-term catalysts the bullish case for the stock can no longer be justified.

Price Action

HP's stock was down 3 percent to $25.62 at time of publication.

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