Citi Slashes PC Forecast, But Still Likes HP Stock

A new report by Citi Research focuses on the PC industry and what investors can expect throughout the remainder of 2015. Although Citi cut its forecasts for the PC industry, the firm remains bullish on Hewlett-Packard Co (NYSE: HPQ).

The numbers
Based on Citi’s most recent supply chain analysis, analysts are cutting projections for overall 2015 PC growth from -5 percent to -7 percent. According to the report, neither excess PC inventory nor lackluster demand has improved recently and will continue to weigh on the industry.

In addition, Citi is lowering its Taiwan notebook shipment growth projections from 8 percent quarter-over-quarter (Q/Q) to 6 percent for Q2.

“We believe the weakness YTD has been a combination of 1)excess channel inventory of PCs exiting 4Q14 which failed not only to resolve in 1Q15 but also thus far in 2Q15, 2)FX volatility in Q1, which resulted in a contradiction of inventory held by the channel, and 3) slower than expected recovery of PC demand in emerging markets,” Citi analyst Jim Suva explains.

Emerging markets key
The strength of emerging markets is critical for the PC industry, as emerging markets represent 55 percent of the PC business. Citi is now projecting PC demand growth in emerging markets to fall 5.0 percent in 2015 and 2.0 percent in 2016 before turning slightly positive in 2017.

Stock picks
Citi maintains its Buy rating on HP and notes that HP, Dell and Lenovo continue to gain market share as smaller names in the PC space fall by the wayside. In addition, Citi has a Buy rating on Quanta Services Inc (NYSE: PWR) and mentions the company’s growing cloud business as a major reason for the call.