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Credit Suisse Bullish on Hewlett-Packard Company (HPQ) Following Split

By Shira Gonen

In October 2014, Hewlett-Packard Company (NYSE:HPQ) announced it would split into two separate, publicly traded companies. HP Inc. will focus on PCs and printing, and HP Enterprise will focus on newer technologies, such as cloud and data storage. With a decline in PCs and consumer printing, HP had to restructure in order to recoup its consistently missed price targets, underperforming for the past 10 quarters. Other tech giants such as Dell have made similar moves in the last year, buying EMC and focusing more on the cloud and data storage sectors to stay relevant and competitive in the ever-changing market.

After HP announced low Q3 earnings over the summer, down 8% from the previous year, some analysts were apprehensive of the change, while others saw an opportunity for growth. Although the company last posted non-GAAP earnings per share of 87 cents, beating estimates of 85 cents, it missed its $25.5 billion estimated revenue, reporting only $25.3 billion. Despite critics of the decision to split, some believe the move is just what HP needs to stay competitive. HP CFO Catherine Lesjak quelled investor concerns, citing that HP’s market share in the PC sector rose to 18.9% in the third quarter.

Now that the company has officially split into two independent entities, Kulbinder Garcha of Credit Suisse initiated coverage on HPQ with an Outperform rating and a price target of $19. He believes that although the printing and consumer industry is slowing down, the key to HP’s success in this split is its investment in new technologies. Furthermore, the analyst sees the split as an opportunity for the company to generate revenue from other aspects of its consumer sector, such as ink. According to Garcha, HP’s strategy to focus more on the commercial sector “could offset declining consumer printers with higher value commercial printers” by investing more in its subsidiaries such as IPG, which makes laser printers.

Kulbinder Garcha has an overall success rate recommending stocks of 55% with an average return of +7.8% per rating. According to TipRanks, 13 of the 22 analysts who have weighed in on HPQ in the last 3 months are bullish on the technology company, 1 analyst is bearish, and 8 are staying on the sidelines. The average 12-month price target between these 22 analysts is $32.87, marking a 137% potential upside from current levels.