Argus Likes HP Inc, Expects Positive Revenue By The End Of 2016

• Shares of HP Inc HPQ have been steadily declining in 2015 and are down 70 percent year-to-date.
• Argus’ Jim Kelleher maintained a Buy rating on the company, with a target price of $16.
• Demand recovery among enterprise customers is expected to boost HP’s margins in the near future, Kelleher stated.

HP’s FY2016 revenues are expected to decline 5 percent due to currency headwinds, although continued improvement in comps may lead to positive revenue growth in the final quarter of the year, analyst Jim Kelleher mentioned.

HP begins with a smaller balance sheet wherein total debt is $9.7 billion, compared with $6.8 billion in cash and investments. The analyst expects a recovery in demand among enterprise customers to boost the company’s margins in the near future.

“The HPQ and HPE shares split at a 2,200:1,000 ratio, meaning approximately 45% of the pre-split price went into HPQ share price; we have thus adjusted our 12-month target price to 45% of the prior level,” Kelleher wrote.

HP’s CEO Dion Weisler and CFO Cathy Lesjak acknowledged that the challenges facing the company’s printing and personal systems markets have intensified since the pre-split company’s Analyst Day event in September. HP is, however, taking steps to achieve productivity improvements by reducing its cost structure and preserving margins.

“The HPQ shares trade at discounts to historical multiples (for the predecessor company). Based on our cash flow assumptions, HP Inc. also trades at attractive valuations based on our discounted free cash flow model,” Kelleher added.