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[video] HP's Big Revenue Beat: What Wall Street Is Saying

Stocks in this article: HPQ CSCO IBM

NEW YORK (TheStreet) -- HP (HPQ) investors breathed a massive sigh of relief after the tech giant blew past Wall Street's revenue forecasts in its fourth-quarter results released on Tuesday. Analysts, however, cited the company's margins as an ongoing area of concern.

The embattled tech giant reported sales of $29.1 billion, down from $30 billion in the prior year's quarter, but comfortably above analysts' forecasts of $27.91 billion. Excluding items, the PC maker earned $1.01 a share, down from $1.16 a share in the same period last year. Analysts were looking for earnings of $1 a share.

Prior to the results, there had been concern that HP would experience the same spending pressure that impacted rivals Cisco (CSCO) and IBM (IBM). Despite acknowledging a tough macroeconomic environment, HP still delivered an impressive top-line beat.

HP's personal systems business was cited as a highlight by CEO Meg Whitman during the company's earnings conference call. "We outperformed the market with particular strength in our commercial PC business," she said, adding that although personal systems revenue declined 2% year over-year, it was flat in constant currency. The market, she noted, declined 9.5% in units in the third calendar quarter.

Whitman said that HP gained 1.8 points of share over the prior year and 1.2 points sequentially. "In the fourth fiscal quarter, HP saw its first unit growth since the first calendar quarter of 2012 even as the market saw a continued decline in units," she added.

Investors, eager for some good news from the tech giant, were clearly thrilled with the fourth-quarter numbers, sending HP's shares surging. The company's stock is up 6.46% to $26.71 before market open on Wednesday.

Wall Street, however, is citing HP's operating margin as an area of concern. Excluding items, the Palo Alto, Calif.-based firm reported an operating margin of 9%, down from 10.4% in the prior year's quarter.

ISI Group analyst Brian Marshall noted that this number came in well below his estimate of 9.2%. "While CEO Whitman commented the company experienced pricing pressure and unfavorable mix in the quarter, we suspect HPQ essentially 'gave away' product to customers at zero margin in order to not lose market share," he wrote. "In our view, this trend is concerning and the reported quarter does nothing to change our contention that HPQ remains in a precarious position today (i.e., at risk of losing its customer relevancy)."

Marshall has a "neutral: rating on HP.

These sentiments were echoed by Cantor Fitzgerald analyst Brian White, who had predicted an operating margin of 9.5%. "HP reported healthy 4Q:FY13 sales upside on strength in the PC market but margins came under pressure," he wrote. "A clear theme that we heard on the HP call was that the company was more aggressive in the market and this drove higher sales, however, a lower margin profile."

White, who has a "hold" rating on HP, urged investors to approach the company with caution.

"Over the past year, we have found that most HP news has been greeted by the market as good news and the stock has rallied 76% year-to-date; however, we don't believe this sentiment is sustainable given the company's performance and mounting competitive pressures," he wrote.

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