HP Quarterly Results Update Q2'13

Key Highlights

  • Hewlett Packard (HPQ) stock price increased by 17.1% from the previous close to reach $24.86 on 23rd May and touched $24.21 on 24th May, post the announcement of the latest earnings results (for the period Apr 30, '13). Analysts had anticipated HP to post a non-GAAP EPS (Earnings per Share) of $0.81 during the quarter vs. the actual $0.87. This increase in non-GAAP EPS is believed to be the result of the CEO, Meg Whitman's cost cutting initiatives.
  • Q2 2013 revenue stood at $27.6 billion, $400 million, below analysts' estimates.
  • It is important to note that the analysts are taking the stock price growth with a pinch of salt, since the quarter witnessed one of the highest negative revenue growth, both in terms of Reported Currency and Constant Currency at -10.1% Y/Y and -9.0% Y/Y respectively. Also, as stated by Whitman, the revenue growth would remain sluggish in the near-term.

At a very high level, the financial performance and the outlook for Q3'13 and FY 2013 is captured in the table below:

Q2 2013 YoY growth % QoQ growth % Consensus
Revenue ($ billion) 27.6 -10.1 -2.8 28
Operating Matgin % 5.8 -1.4 -0.4
Non GAAP Operating Margin % 8.6 -0.3 0.7
Net Income Margin % 4.0 -1.2 -0.2
Non GAAP Net Income Margin % 6.2 0.0 0.5
EPS 0.55 -31.3 -12.7
Non GAAP EPS 0.87 -11.2 6.1 0.81

HPQ revenue for Q2 2013 is as shown in the chart below.
HPQ revenue chart Q2 2013
Source: Hewlett Packard revenue chart by Amigobulls

Outlook

EPS Outlook GAAP Non GAAP
Q3 2013 $ 0.56 - 0.59 $ 0.84 - 0.87
FY 2013 $ 2.50 - 2.60 $ 3.50 - 3.60
  • The P/E during FY 2013 is estimated to be at 5.98x for the company and 10.42x for the industry. A huge discount given to HP’s stocks as compared to the industry average due to sluggish revenue growth and a weak liquidity position. The total debt of $26.8 million vs. the cash balance of $13.2 million leaves the net cash position in red.
  • Analyst Ratings: Strong buy - 2, buy - 2, hold - 22, underperform - 7 and sell - 1. The median recommendation remains 'hold'.
  • IT/BPO sector is predominantly driven by improving the top line approach vis-a-vis the company's strategy of improving the bottom line approach. This suggests that the pipeline would not witness any extraordinary positive outlook in the immediate future, and that the company is still trying to keep this pace up with market leaders like Apple and Samsung.

On the geographies front, all geographies except Asia Pacific witnessed a negative growth on Quarter on Quarter basis as portrayed in the charts below:<
regions
Source: HP release

Conclusion

Considering the above factors, we opine that the company is worth a deeper look and that there are no near-term catalysts to drive the stock price, thereby limiting the attractiveness as compared to other market leaders in the industry.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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