- Adjusted earnings: $0.65 per share vs $0.54 per share expected from analysts
- Revenue: $14.62 billion vs $14.63 billion
- Stock outlook upgraded from “Hold” to “Buy”
- Shares hit a 1-year high near the $24 ma
Shares of HP gained nearly 6% yesterday after the company reported better-than-expected earnings for its fiscal first quarter. As a result, the stock has been updated to “Buy” from “Hold” by Loop Capital analyst Ananda Baruah with a price target of $28, up from $19.
Fundamental analysis: Earnings beat, management discusses Xerox’s takeover offer
The California-based producer of personal computer equipment and printer maker reported adjusted earnings of $0.65 per share on sales of $14.62 billion for the quarter that ended Jan. 31. Market expected earnings of $0.54 per share on sales of $14.63 billion.
“Our Q1 results reflect a business that is strong and getting stronger. This is a team at the top of its game, combining the industry’s best innovation with disciplined execution and cost management to deliver for our shareholders. We have great confidence in our plans and are raising our full-year earnings outlook,” said Enrique Lores, President and CEO, HP Inc.
Its biggest unit, personal computers, witnessed a sales increase of 2% to $9.89 billion on a year-to-year basis. On the other hand, the printer and supplies business recorded a 7% drop.
The company expects to earn between $2.33 per share to $2.43 per share for the full year, again higher than market estimates of $2.26. Moreover, HP presented a multiyear strategic and financial value creation plan, which should see earnings per share reach a range of $3.25 per share to $3.65 per share in the fiscal 2022.
“This significant expected earnings growth is supported by HP’s market leadership and track record of execution across Personal Systems, Print, and 3D Printing & Digital Manufacturing, disciplined and sustained cost actions, as well as a new capital return program of approximately $16 billion during fiscal 2020 to fiscal 2022,” said the company in a statement.
Loop Capital analyst Ananda Baruah upgraded the stock outlook to “Buy” from “Hold” with a price target of $28, up from $19.
HP also increased the total share repurchase authorization to $15 billion from $5 billion, which makes it more difficult for rival Xerox to materialize its hostile takeover bid. Still, the company won’t completely rule out a possibility of merging with Xerox.
“HP is reaching out to Xerox to explore if there is a combination that creates value for HP shareholders that is additive to HP’s strategic and financial plan,” it is said in the statement.
Analysts also believe that Xerox is in a more difficult position now, following the buyback program.
“This, combined with the poison pill adopted last week, in our view makes it harder for Xerox to acquire HP,” BMO Capital Markets analyst Tim Long wrote.
Technical analysis: Stock hits a one-year high
As a consequence of positive earnings, XP stock price gained almost 6% yesterday, although it traded more than 8% higher at one point. Shares are now trading at the highest levels since February last year.
As seen in the weekly chart above, the price action is now approaching the key short-term resistance just above the $24 handle. The 14-month high sits at $24.17. Should investors continue to buy HP stock this week, we may see a test of the 20-year high above the $27 mark.
Shares of HP trade more than 5.5% higher on earnings beat and better-than-expected guidance outlook. As a result, the stock price hit a one-year high as the bulls aim for the $27 – $28 range in the coming weeks and months.