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HP (HPQ) was 4.9% lower at midday Wednesday after quarterly revenues missed expectations amid another slump in personal computer sales, and analysts largely maintained their downbeat views in reaction.
The company topped profit expectations, but its revenues slipped nearly 22% to $12.91B, missing consensus. While net revenue in the Printing division fell 5% to $4.7B, Personal Systems felt the pain — down 29% to $8.2B.
Of that, consumer personal systems revenues fell 39%, vs. commercial personal systems revenue drop of 24%.
In unit terms, total units fell 28% (consumer down 34%, commercial down 23%).
Barclays maintained its Underweight view on the stock in reaction, and a Street-low price target of $24, implying another 19% downside.
“While PC inventory correction is well under way, we think [average selling price] degradation is just getting started,” analyst Tim Long said. PC weakness has started to hit ASPs, which are down in the mid-single digits year-over-year, vs. “flattish” in the January quarter. The company saw price promotions with lower demand and still elevated channel inventory, “which should lead to worse ASPs from here,” he added.
Meanwhile, full-year guidance implies a back-end loaded year with expectation for normal seasonality in Q4 — that’s a “steep ramp,” Long said, adding “We continue to see downside for shares with near-term top-line, margin and cash flow pressures, though cost cuts help offset some of the underlying weaknesses.”
Wells Fargo’s Aaron Rakers also reiterated an Underweight rating, adding “We think investors will focus on the degree of [gross margin percentage] benefit from component pricing and opex spending trends heading into F2H23.”
And BofA is concerned about weak consumer spending as well as weak enterprise spending, expecting margins to normalize lower. The firm also sees risk in the loaded back half.
“The strong growth in F2H FCF is predicated on improving cash conversion cycle (more negative) on growth in Personal Systems revenue, driven by improving PC demand,” analyst Wamsi Mohan said. “However, we see headwinds from weak consumer spend, and possible higher inventory driven by strategic purchases and higher use of sea shipments.”
For more detail, dig into HP’s earnings call presentation and Seeking Alpha’s transcript of HP’s earnings call.
