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HP (HPQ) Displays Solid Prospects: Should You Buy the Stock?

A prudent investment decision means buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold on to certain stocks that have enough potential but are weighed down by tough market conditions. Here, we take into account HP Inc. HPQ, a company which has potential to perform well in the near term.

HP Inc. is one of the two companies which came into existence post the split from the parent company – Hewlett-Packard Company – in Nov 2015. The stock has been clocking solid returns since then and gained approximately 33.2%, outperforming the Zacks categorized Computer-Mini industry’s return of 22.5% during the same time frame. The major part of the rally has been witnessed this year. In the year, so far, the stock has gained 24.1%.

The other company which came into existence after the split is Hewlett Packard Enterprise Company HPE.

What’s Driving the Stock?

Post the split, HP adopted a strategy of focusing on product innovation and differentiation, as well as enhancing the capabilities of its printing business, which will stabilize the top line.

Over the past one year, the company launched various models under its PC product lines of EliteBook, Spectre and Pavilion Wave. Apart from this, it is focusing on its pricing actions and marketing and sales activities which have helped in stimulating demand for its PC products in the market.

The impact of these initiatives is well indicated by the fact that the company has gained its top position once again by replacing Lenovo, per Gartner’s recently released data on PC shipment for second-quarter 2017. Also, the last-quarter growth in the company’s PC shipments was its fifth quarter of consecutive year-over-year improvement after several quarters of decline.

The company’s efforts to revamp its printing business have also been commendable. It should be noted that HP signed a deal to acquire Samsung Electronics’ printer business in 2016, for $1.05 billion. The acquisition is a strategic fit for HP as it will expand the company’s printing business, with the addition of 6,500-plus printing patents owned by Samsung.

In addition, the company is now focused on boosting its 3D printing business capabilities. However, unlike 3D Systems DDD and Stratasys SSYS, which target all kinds of consumers, HP is emphasizing only on industrial markets because of their ability to afford a premium range of 3D printing solutions. It should be noted that even though HP has been operating in this space for almost five years now, it still lags behind 3D Systems and Stratasys.

On the cost front too, HP has taken remarkable steps, which include the divestment of its content management software tools and Customer Communications Management (CCM) assets to Open Text Corporation and elimination of around 3,000–4,000 jobs.

The company expects the divestment of CCM to reduce cost and enhance productivity. This, in turn, would help the company enhance its profitability. The job cuts are anticipated to generate annualized cost savings of approximately $200–$300 million from fiscal 2020.

Bottom Line

We believe that HP’s massive restructuring moves will complement its focus on core businesses, as well as enable it to expand its share in the PC and Printing market. Furthermore, the two independent research firms – Gartner and International Data Corporation – hinted that the PC industry has been moving toward stabilization. Therefore, we believe stabilization in PC shipments will benefit the business prospects of companies like HP Inc.

Furthermore, HP has a VGM Style Score of “A”. We note that our VGM score highlights the determining elements in a stock that can push the stock price higher. We can essentially filter out the negatives and focus on the positives which drive price.

Therefore, in our opinion, the stock deserves a place in investor’s portfolio. Currently, HP carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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HP Inc. (HPQ): Free Stock Analysis Report
 
3D Systems Corporation (DDD): Free Stock Analysis Report
 
Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report
 
Stratasys, Ltd. (SSYS): Free Stock Analysis Report
 
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