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HP stock forecast: Has the computing giant peaked?

By Ryan Hogg

Edited by Jekaterina Drozdovica

15:33, 8 June 2022

HP stock forecast: Has the computing giant peaked? illustration of the financial stock market chart, the concept of business investment and stock futures trading.
HP stock forecast: Has the computing giant peaked? Photo: whiteMocca / Shutterstock.com

HP (HPQ) stock is hovering around record highs after two years of sustained, Covid-era growth driven by huge demand from newly remote workers. 

But do short-term boons like an investment from Warren Buffett and a scheme of dividends and share buybacks mask longer-term difficulties? The latest HP stock forecast 2022 suggests the party might be over.

HP stock analysis

HP’s stock continues to ride a wave of strong investor sentiment, after a couple of years of HPQ historical stock price stagnation between 2018 and 2020. 

The stock kicked into gear during Covid-19 as home working went mainstream. Demand for printers, laptops and desktops at home drove profits. 

The Hewlett Packard stock price climbed more than 18% in 2020 and more than 56% in 2021. It has seen more fluctuation this year, rising 4.91% year to date amid wider stock market consternation. 

HP stock price chart, 2017 - 2022

In the recent past, HP has tended to outperform rivals in the computer and hardware sector. The stock has risen nearly 30% in the last 12 months, while the computer sector has contracted more than 10% over that time, according to MarketBeat data. 

HP also holds a lower price-to-earnings (P/E)  ratio than the sector average, implying a more grounded valuation. 

HP closed on 7 June 2022 at $39.36, a 0.43% drop over the day, contributing to a 1.13% fall over the week. 

A HP stock technical analysis at the time of writing (8 June) revealed bullish sentiment. While a relative strength index (RSI) reading of 53 was broadly neutral, the stock was trading above its 10, 20, 30 and 50-day moving averages (MA), indicating an upward price trend.  

Warren Buffett’s backing

Recent HP stock news caused investors to turn their heads when it became the subject of investment from Warren Buffett’s Berkshire Hathaway. 

An SEC filing published on 6 April showed that the so-called ‘Sage of Omaha’ became a 10% owner in the company, buying 109 millions shares and then a further 11 million

The backing by Berkshire Hathaway, which has a tendency to back “value investing”, was regarded as a seal of approval for the printing and PC manufacturer, particularly in an investing environment that has hammered the tech sector. 

Berkshire Hathaway’s modest year-to-date rise, as , meant investors were more inclined to buy HP stock following the purchase.  

Shortages easing but demand may dampen

HP is part of a long list of tech companies dealing with a global semiconductor shortage amid wider supply chain crunches. The shortage was seen to be at its worst in August 2021, when it contributed to earnings misses. 

But the company has been able to ramp up inventories again, helping it respond to demand with less pressure to raise prices.

HP inventories, July 2020 - April 2022

Despite that, high levels of inflation (8.3% in the US) could pull down demand in the short run. Although HP’s rising growth in the Asian market, where price rises are still modest, including 2.1% in Japan, may help offset that.

The company could be more concerned about the viability of printing in the long run for a sizable share of its revenues, and encroachment on market share in its computer market from competitors like Apple (AAPL) and Dell (DELL).

Share buy-back offsets tempered guidance

Earnings for HP’s fiscal second quarter 2022 showed the company continued to add revenue in key areas. Total revenue was $16.5bn, representing growth of 4.9% year-on-year in constant currency terms. 

The company is largely broken into Personal Systems (PS), accounting for $11.5bn in revenue in the last quarter, and Printing, accounting for $4.9bn. The two had divergent fortunes last quarter, with PS constant current revenue up 10.6% against Q2 2021, and printing down 6.5%.  

A large chunk of HP’s revenue comes from the sale of its notebook and desktop PCs, making up 64% of the group’s $16.5bn revenue last quarter. Printing supplies make up the majority of its printing revenue. All depend on large levels of supply, with the group recording $8.9bn in trailing four-quarter revenue. 

HP revenue by key segment

HP’s activities allowed for a GAAP operating profit of $2.0bn in the last quarter. Despite falling revenue, printing proved a more profitable endeavour than PS, accounting for 55% of operating profits with an OP margin of 18.3%, compared to 6.9% for PS.

GAAP diluted earnings per share (EPS) of $0.94 was a 4% contraction on Q2 2022’s figure of $0.98, and fell below the company’s own guidance of $0.95 to $1.01.   

The company initiated a buyback of 27 million shares, amounting to $1bn, while it paid out $262m HP stock dividends amounting to $0.25 a share, wooing short-term investors.

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Guidance provided by HP for the fiscal 2022 third quarter indicates GAAP diluted net EPS in the range of $0.91 to $0.96. 

For fiscal 2022, HP updated its estimate of GAAP diluted net EPS to the range of $3.79 to $3.93, down from previous guidance for the year of $3.87 to $4.07.  

Analyst outlook

“We think HP+ and Big Tank are pulling forward hardware demand and could see a revenue drop down the road.”
by Tim Long, Barclays

Morningstar analyst Mark Cash said HP had strong upside following the Buffett-led acquisition speaking to Capital.com in April.

"HP is aggressively returning capital to shareholders through buybacks and dividends (born out of defending itself from Xerox's hostile takeover attempt a couple of years ago) – including at least 100% of its free cash flow in FY22 (full-year 2022), with $4bn in share repurchases and a growing dividend,” Cash said.

“While we think the capital return program was forced on HP, it is in shareholders' interests.”

He added: "Within tech, HP can be considered a value play. It is working to diversify into market segments to help insulate from any IT or consumer spending slowdowns, so Berkshire Hathaway could envision stronger growth trajectory in higher margin spaces, but we still expect its core to be commodity PC and printer related."

In a 31 May 2022 note shared with Capital.com, Barclays analyst Tim Long was pessimistic about HP’s near-term potential. The broker remained weary on PC growth and share price rises built largely on share buybacks. 

“We still believe the PC market is above trend with HPQ over-earning and expect volumes to begin to correct meaningfully at some point in the next few quarters,” Long said.

“True demand is difficult to gauge when components are constrained, in our view. We question the durability of price and margins across PCs and Print, particularly as macro pressures weigh.

“While initiatives into growth segments within Personal Systems and Printing are interesting (particularly gaming, digital services, subscription, graphics and 3D printing), we are concerned that they will not move the needle much in the near term. We think HP+ and Big Tank are pulling forward hardware demand and could see a revenue drop down the road.”

Long noted some positives to the stock may be found if the company can continue to realise strong growth in its key areas like instant ink and industrial graphics, and realise new revenues in emerging markets like 3D printing. 

Concerns, though, were focused on a shortage of key component parts as global supply chains continue to feel the strain.

In another post-earnings note shared with Capital.com, a group of JPMorgan analysts led by Samik Chatterjee rated HP shares neutral, slightly more bullish than Barclays’ assessment but still wary of the headwinds ahead. 

“We believe the commercial PC cycle will moderate above bearish investor expectations, but we recognize greater headwinds in the consumer PC cycle, leading to low-single-digit top-line growth beyond FY21E (full-year 2021 earnings),” the analysts said in the note.

“Combined with the secularly declining Print market, we expect relatively flat revenue growth for HPQ and earnings growth primarily led by an accelerated pace of buybacks.

“Despite these headwinds, HPQ’s market share position and ~2x discount to historical trading multiples (plus ~2x discount to peer company Xerox) lead us to rate HPQ shares Neutral.”

HPQ share price forecast

Is HP stock a buy, sell or hold? According to data compiled by MarketBeat, as of 8 June, HP stock was in a ‘hold’ position, based on 12 analysts’ ratings, with two buy’, seven ‘hold’, and three “sell” ratings.

The average HPQ stock price target from those 12 analysts was $36.92, ranging from the high of $50 to the low of $31.

Recent assessments of the stock have been split between bullishness and bearishness. Citigroup analyst Jim Suva upgraded Citigroup’s outlook on 1 June in response to earnings, providing a price target of $40 which represented an upside of 2.99% on report date.

Meanwhile Tim Long of Barclays upgraded the stock to $32 from a previous target of $29 but, based on his analysis outlined earlier, it was still based on projections that HP stock would fall, with a downside of 17.61% on report date.

Algorithm-based forecasting service Wallet Investor was bullish on HP’s prospects over the medium and long term. After predicting a price target of $41.99 to close 2022, the stock was expected to rise to $56.67 by December 2025. In five years’ time in May 2027, the stock was predicted to reach $62.88.

AI Pickup, another algorithm-based long term forecasting service, was very pessimistic on the stock, with a HPQ stock price prediction of $34.44 by 2030 after hitting a low of $14.01 in 2027.

Note that analyst and algorithm-based projections can be wrong. Forecasts shouldn’t be used as substitutes for your own research. Always conduct your own diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. 

Keep in mind that past performance doesn’t guarantee future returns. And never invest or trade money you cannot afford to lose.

FAQs

Is HP a good stock to buy?

Analysts are split on whether HP is a good stock to buy, with worries over the long-term viability of printing products chief among concerns. But Warren Buffett’s purchase of stocks may suggest optimism for the stock moving forward. Remember, that whether HP is a good stock for you should depend on your risk tolerance, portfolio size and goals, and expertise in the market. Always conduct your own due diligence.

Why has the HP stock price been going up?

Analysts say HP has enjoyed strong growth partly due to share buybacks, which may have slightly inflated the stock. Easing of supply chain worries, coupled with increased demand for remote working facilities, has driven the stock since the onset of the pandemic.

Will HP stock price go up or down?

Based on the opinions of 12 analysts compiled by MarketBeat as of 8 June, HP had an average price target of $36.92, ranging from the high of $50 to the low of $31. Note, however, that analysts’ predictions can be wrong and shouldn’t be used as substitutes for your own research. Always conduct your own due diligence before investing or trading. And never invest money that you cannot afford to lose.

Markets in this article

AAPL
Apple Inc (Extended Hours)
224.55 USD
-0.28 -0.120%
DELL
Dell Technologies Inc.
125.87 USD
0.1 +0.080%
HPQ
HP
37.22 USD
-0.21 -0.560%

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