On Mar 20, 2013, Zacks Investment Research upgraded Hewlett-Packard Co. (HPQ) or H-P to a Zacks Rank #1 (Strong Buy).
With a stellar return of 63.6% over the past three months, continuous deal wins and a positive estimate revision trend, this provider of computing solutions is an attractive investment opportunity.
Why the Upgrade?
Positive news flow continued for H-P over the past few months, prompting the upgrade.
In January, H-P managed to retain a federal contract worth $543.0 million despite IBM Corp.’s (IBM) protest. Earlier, a 5-year wireless tracking contract was announced by the Department of Veterans Affairs. H-P won the contract defeating 90 other competing companies. IBM challenged the agency’s decision and its evaluation process before the U.S. Government Accountability Office, the agency to resolve contract disputes. The contract was held back for evaluation but was ultimately awarded to H-P.
Since January, H-P sealed a number of deals. A Poland-based government healthcare unit, National Centre for Health Information Systems opted for H-P’s services to develop the e-health environment (or electronic health record system) across Poland. The Department of Vermont Health Access renewed a service deal with H-P’s Enterprise Services unit for 4 years. The tech giant also provided its services to automatic test equipment manufacturer Teradyne Inc., bellwether brewer Molson Coors Brewing Co., the U.S Immigration Agency and the U.S. Army Human Resources Command among others.
H-P also unveiled a new BPO (business process outsourcing) solution, a host of desktop printers, two media players and a customized mobile application for the U.S. Department of Housing and Urban Development. The new launches indicate the PC giant’s focus shift from its low-margin PC-centric business.
H-P recorded a 5.5% year-over-year decline in revenues and 11.8% decline in earnings per share in the first quarter of fiscal 2013. But the highlights of the quarter were a modest guidance, share buyback and dividend payout. H-P was positive about the growth within its Storage and Networking segments. Also, the company mentioned that it would continue to focus on the strategic enterprise services business, which includes cloud, application modernization, security and information management, and analytics.
Lastly, H-P’s restructuring activities, which focus on reducing the cost structure and realigning the workforce to create investment capacity, support growth initiatives and innovation, which enable more effective operations globally, are also encouraging.
In the last 60 days, 14 estimates were revised upward for fiscal 2013 and fiscal 2014 each. The Zacks Consensus Estimate for 2013 increased 5.2% to $3.47, while the same for 2014 jumped 3.4% to $3.64.
In the past four quarters, the company has posted an average surprise of 6.5%. Considering the above factors, H-P has the potential to post a positive earnings surprise in the upcoming quarter.
Other Stocks to Consider:
Investors could also consider other technology stocks that are doing well right now. These include NetSol Technologies Inc. (NTWK) and Synopsys Inc. (SNPS) both carrying a Zacks Rank #1 (Strong Buy).
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