By Sam Boughedda
A Morgan Stanley (NYSE:MS) analyst told investors in a note on Friday that ahead of HP Inc.'s (NYSE:HPQ) earnings next week, estimate revisions risk remains skewed to the downside, keeping them at Underweight on the stock.
"We are cautious heading into F3Q22 earnings next Tuesday (August 30th) as we expect HPQ to report July quarter revenue closer to MSe of $14.2B (-7% Y/Y), which is 10% below consensus of $15.7B (+3% Y/Y)," said the analyst.
The analyst believes that is driven by weaker-than-expected PC shipments and demand while they are also experiencing slower PC ASP growth.
"Year-to-date, HPQ has been a relative outperformer with shares down just 13% vs. the S&P -14% and the average technology hardware stock (excl. AAPL) down 18%, as solid F1H pricing gains and elevated buybacks have more than offset weaker PC shipments. However, we believe that with PC demand weakening further and pricing tailwinds now fading (vs. accelerating in LTM), the F4Q22 and FY23 setup is more challenging, where we currently model revenue 7% and 5% below consensus, respectively," the analyst added.
He concluded: "With shares trading at ~8x our FY23 EPS of $4.24 (for comparison, DELL currently trades at ~6x our FY23 EPS of $7.00), we believe the market is yet to fully price in this more cautious outlook, which historically drives HPQ multiple compression and stock underperformance."