HP (HPQ) Stock Gains on Strong FY24 Outlook, Dividend Hike
HP Inc. HPQ shares gained more than 1% on Tuesday after the personal computer (PC) manufacturer provided strong profit forecast for fiscal 2024. The company expects fiscal 2024 non-GAAP earnings per share (EPS) between $3.25 and $3.65 (mid-point $3.45), whereas the Zacks Consensus Estimate is pegged at $3.46. HP projects a GAAP EPS of $2.75-$3.15 for fiscal 2024.
HP expects to generate a free cash flow of $3.1-$3.6 billion in fiscal 2024, and return 100% of this to shareholders through share repurchases and dividend payments. Additionally, the company’s board has approved a 5% increase in annual dividend to $1.1024 per share.
The company expects annualized gross run rate structural cost savings from its ongoing Future Ready Transformation Plan to be $1.6 billion by the end of fiscal 2025. The updated forecast is $200 million higher than the initial projected savings of $1.4 billion. However, it anticipates no change in estimated restructuring and the related charges of approximately $1 billion.
HP had announced its Future Ready Transformation Plan in November 2022 to achieve structural cost savings through digital transformation, portfolio optimization and operational efficiency. The plan also includes reduction in global workforce by 4,000-6,000 by the end of fiscal 2025.
Shares of HP have underperformed the Zacks Computer – Mini Computers industry in the year-to-date (YTD) period. The HPQ stock has declined 1.6% YTD against the Computer – Mini Computers industry's growth of 37.2%.
HP Inc. Price and Consensus
HP Inc. price-consensus-chart | HP Inc. Quote
Solid Long-Term Outlook
HP also made strong long-term forecast for revenues and earnings during a meeting with securities analysts in Palo Alto, CA. The company projects 2-4% long-term annual revenue growth with the Personal Systems and Print segments, both increasing in-line with their respective market growth.
The PC manufacturer expects non-GAAP operating profit to increase in the low-to-mid single-digit percentage range in the long run. It projects to maintain Personal Systems’ non-GAAP operating margin of 5-7% while the Print segment’s margin is anticipated to increase in the range of 16-19%.
HP predicts its long-term non-GAAP EPS to witness a CAGR of high-single-digit percentage range and expects to generate a free cash flow in line with net income.
Furthermore, the company targets to distribute 100% of the free cash flow to shareholders through share buybacks and dividends unless some higher return on investment opportunity emerges. It also targets to increase dividend rate at least in line with net income growth.
HP Sees Signs of Recovery
Latest long-term forecast for the top and bottom lines reflects that HP is positive about recovery in PC market. Notably, in 2020 and 2021, PC manufacturers had benefited from the increased demand amid the pandemic-induced remote-working and online-learning wave. The pandemic necessitated using PC systems for remote work, web-based learning, video conferencing, video gaming, social media, consumer entertainment and streaming or online shopping.
However, the reopening of economies and offices, inflationary pressure and recession concerns have been waning the demand for consumer PCs. Furthermore, enterprises are delaying their large IT spending amid macroeconomic challenges.
Additionally, the latest data compiled by Gartner for third-quarter 2023 PC shipments reflect a strong sequential improvement that can be seen as an initial sign of stabilization in the industry. The technological research and consulting firm pointed out that worst could be over for vendors by the end of 2023 and PC market recovery can be seen in 2024 due to increased demand driven by PC refreshment cycle.
Garter forecasts that PC shipments will grow 4.9% in 2024, driven by increased shipments across both the business and consumer segments.
Zacks Rank & Stocks to Consider
Currently, HP carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader technology sector are NVIDIA NVDA, Palo Alto Networks PANW and Paylocity Holding PCTY. NVIDIA and Palo Alto sport a Zacks Rank #1 (Strong Buy) each, and Paylocity carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for NVIDIA's third-quarter fiscal 2024 earnings has been revised upward by 2 cents to $3.34 per share in the past 30 days. For fiscal 2024, earnings estimates have increased by 7 cents to $10.74 per share in the past 30 days.
NVIDIA’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing on one occasion, the average surprise being 9.8%. Shares of NVDA have rallied 213.4% YTD.
The Zacks Consensus Estimate for Palo Alto Networks' first-quarter fiscal 2024 earnings has been revised upward by 6 cents to $1.16 per share in the past 60 days. For fiscal 2024, earnings estimates have increased by 39 cents to $5.34 per share in the past 60 days.
Palo Alto Networks’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 22.2%. Shares of PANW have surged 84.1% YTD.
The Zacks Consensus Estimate for Paylocity’s first-quarter fiscal 2024 earnings has remained unchanged at $1.07 per share in the past 60 days. For fiscal 2024, earnings estimates have moved 5 cents upward to $5.58 per share in the past 60 days.
Paylocity’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 39.7%. Shares of PCTY have gained 4.2% YTD.
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