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Barclays Downgrades Hewlett-Packard And Ingram Micro


Barclays downgraded Hewlett-Packard Company (NYSE: HPQ) and Ingram Micro Inc. (NYSE: IM) Thursday from Overweight to Equal-weight, largely due to currency related concerns.

Analysts led by Ben A. Reitzes gave an overview of the issues related to the appreciation of the U.S. dollar, in particular against the euro.

Reitzes noted that if the currencies continue to move toward parity, then a "re-pricing of many transactional products like PCs, servers, printers, supplies, etc., needs to be redone and rethought."

"In short, these [currency] moves may impact demand more than we are comfortable with right now – in spite of valuation and/or what could already be ‘in the stocks.' HP and Ingram Micro stand out," according to Reitzes, "having just cut EPS and cash flow estimates late last month for earnings," however, the analysts had not cut estimates enough "given the slide in the Euro over the last week."

Looking at the individual companies, Hewlett-Packard had its price target cut from $42 to 35 as estimated 2015 EPS was lowered from $3.63 to $3.58.

Reitzes noted that HP carried "about 35 percent exposure to the EMEA region, which is largely Euro denominated."

The analysts felt that "the direct impact of the exchange rate will hurt revenues, it could also have a spillover effect to PCs and printing" which could prevent HP from offering sufficient discounts as a means of stimulating demand.

Reitzes was impressed with CEO Meg Whitman's management, however, lower cash flow, risks from currencies and falling demand fundamentals contributed to the downgrade.

Turning to Ingram Micro, the stock's price target was cut from $29 to $26 as estimated 2015 EPS was lowered from $2.75 to $2.67.

The analysts pointed out that "European business is sizeable for Ingram Micro" and that in 2014, "Europe represented about 30 percent of sales."

In the previous quarter, the company's European business missed the Barclays estimates even after the analysts accounted for an extra week of sales.

"Management pointed to aggressive pricing and hits from currency, which materially depressed revenues. We don't see why those trends would abate over the near term, especially with the Euro depreciating further," Reitzes concluded.

Ingram Micro recently traded at $22.89, down 2.51 percent.

Hewlett-Packard recently traded at $32.56, down 0.15 percent.

Latest Ratings for HPQ

Apr 2021Morgan StanleyMaintainsOverweight
Apr 2021Morgan StanleyMaintainsOverweight
Feb 2021Morgan StanleyMaintainsOverweight

View More Analyst Ratings for HPQ
View the Latest Analyst Ratings


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