HP Analysts Go Cautious As Macro Concerns Challenge Near-Term Potential

  • Credit Suisse analyst Shannon Cross downgrades HP Inc HPQ from Outperform to Neutral with a $33 price target.
  • Cross believes revenue and margins are challenged near term by weakening consumer sentiment, accounting for ~50% of PC revenue.
  • She also expects pressure on ASPs due to lower demand and better supply, giving back a portion of the margin expansion that began in 2019.
  • She predicts an impact from slower enterprise demand near term for PCs and printing as IT budgets prioritize hybrid cloud, security, and software solutions.
  • She also emphasizes macroeconomic uncertainty, impacting buying decisions for 3D printing and commercial print. 
  • Citigroup analyst Jim Suva maintains a Neutral on HP and cut the price target from $33 to $31.
  • He will hear from PC and enterprise infrastructure vendors in the next two weeks. 
  • The weakening environment in PC, smartphone, and printer device end demand amidst macroeconomic regional and inflationary concerns in recent results will likely remain critical areas of focus. 
  • Enterprise infrastructure demand remains an area of relative strength (Lenovo Group Ltd LNVGY), given high backlog levels.
  • But recent mixed comments from Cisco Systems, Inc CSCO on weakening order growth and Advanced Micro Devices, Inc AMD and Dell Technologies Inc DELL last quarter regarding order strength and enterprise turning more cautious are notable. 
  • He believes macro concerns could significantly impact infrastructure demand in the quarters ahead. 
  • Backlogs and order visibility will be areas of focus and cash generation/capital returns. 
  • He cut estimates on HPQ and Dell based on weakening PC conditions.
  • Price Action: HPQ shares traded lower by 0.31% at $29.34 on the last check Friday.

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