HP Is Resisting Xerox, But Can It Resist COVID-19?

HP Inc. HPQ, Palo Alto-based manufacturer of personal computers and printers, is fighting hostile takeover bid by Xerox Holdings Corporation XRX by beating earnings target in the fiscal quarter ending on January 31^st. For now, HP is managing to ward-off its competition, but there are many headwinds upon the company and the industry in general.

Quarter Results

Analysts' expectations were sales of $14.63 billion and earnings per share of 54 cents. Actual quarter sales were $14.62 billion, earning an adjusted 65 cents per share. If we look at the whole year, the sales slipped 0.6%, compared to the previous year. But the earnings grew by 25%.

Personal computer sales showed a rise of 2% compared to the previous year, bringing HP revenues of $9.89 billion in the first quarter. On the other hand, the printer business showed a decrease of 7%, bringing HP revenues of $4.72 billion. Q1 results present a strong base for the upcoming plans as they raising the earnings outlook.

HPQ Stock Price Trends

The overall trend in the previous six months for HPQ was good, and the stock price was rising since October 2019. The last five days of trading brought a mix of rising and falling of the share price, due to announced beating of expected results but also due to the impact of the coronavirus outbreak. Although earnings results were above expectations, the pandemia did slow down the production, impacting all the manufacturing timelines.

Dell Achieves Q4 Earnings Estimates But Avoids Addressing COVID-19

Only a day after Microsoft Corporation MSFT preannounced lower revenues due to the coronavirus impact, Dell Technologies DELL by-passed the same question as it announced its fiscal 2021 guidance of between $91.8 billion to $94.8 billion in revenue, not accounting any impact from COVID-19 at all. Executives did mention they expect a negative impact on the first-quarter revenues.

Dell Technologies did however manage to achieve Zacks Consensus expectations and delivered quarterly earnings of $2 per share. A year ago, earnings per share were $4.58 (adjusted for non-recurring items). In previous quarters, earning per share were also higher than expected, for 12.9%.

So, Dell managed to surpass consensus EPS estimates in three out of the previous four quarters. Revenues in the quarter ending in January 2020 also exceeded Zacks Consensus Estimate by 0.28%, achieving a total amount of $24.03 billion, comparing to the previous year $23.84 billion.

Xerox Takeover Proposal

In November 2019, Xerox Holdings Corporation XRX made an offer to take over HP for $22 a share. This offer was rejected by HP as it undervalued the company value. Xerox's next move was to make an offer directly to HP shareholders. Further action consisted of an increased offer of $24 a share, containing $18.40 in cash and 0.149 Xerox shares for each HP share.

Using this model, HP was valued more than $34 billion. HP board of directors had to make a plan how to discourage a hostile takeover, the decision was made to give current shareholders the option to buy more shares at a discount price if a person or group acquires more than 20% of company's common stock.

Outlook

HP expects adjusted earnings per share of 51 cents in its second fiscal quarter. No revenue target was given. The analysis gave their prediction, stating that predicted sales are $13.92 billion and earnings per share of 54 cents. Looking at the full year, adjusted earnings per share are predicted at $2.33 to $2.43. Wall Street's yearly estimate of adjusted earnings per share is $2.26.

HP is determined to fight of Xerox at any cost as it finds it to be of qquestionable value and exposed to meaningful risk. But Coronavirus is set out to make quite a few dents to all companies who rely on manufacturing in China or have their supply chains and revenues exposed in any way. HP will really have to work on its "Rocky Balboa" attitude in order to be able to take all those blows and persevere in a struggling industry and a weakening macroeconomy.

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