- 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|
|Non GAAP EPS||0.87||-11.2||6.1||0.81|
HPQ revenue for Q2 2013 is as shown in the chart below.
Source: Hewlett Packard revenue chart by Amigobulls
|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.
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.