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HP's Earnings Beat: Wall Street Concerns Linger

Jefferies analyst Peter Misek (Hold, $30) 

"HP beat on EPS due to large IP and real estate sales and beat on revs mainly due to strong commercial notebooks, which we believe is driven mostly by XP endof-lifing in Apr. FQ2 guidance was light but the low-end of FY14 guidance was raised, implying a further H2-loaded year. We continue to be impressed with HP's execution and we see an H2 enterprise IT hardware rebound, but we also think secular headwinds will make a return to rev growth difficult." 

J.P. Morgan analyst Mark Moskowitz (Overweight) 

"Rolling Along: Revenue Beat Stands to Increase the Potential of a Crossover to Positive YoY Growth. We expect shares of Overweight-rated Hewlett-Packard to be upward trending in the near term. The company delivered a big Jan-Q revenue beat, which could attract more long-term investors to the story. HP also beat on EPS and cash flow, although one-time events helped. Set against a mixed economic environment, HP's results and sturdy outlook were positive outliers as the first earnings season of the year wraps up." 

Must Read: HP Beats on Revenue, Earnings, Sees PC Refresh

ISI Group analyst Brian Marshall (Neutral) 

"Transformation continues, but hard to re-build asset base. HPQ's stock has more than doubled from the start of 2013 (vs. the S&P 500 up ~30%), but it would be a mistake in our view to think HPQ's recovery is now on solid footing. While management may trade off between revenue and gross margins from quarter to quarter (i.e., "giving" business away to stay in key accounts, etc.) we believe gross profits are the best indicator of technology relevance. By this measure, the picture remains bleak (e.g., down almost 20% in 3 years) as many customers migrate to alternate or commodity solutions. Cash flow and EPS have been preserved by favorable working capital adjustments and OpEx cuts (e.g., ~$1.5bil annualized reduction from peak levels)." 

"While we anticipate HPQ will continue finding avenues for expense reduction (much like IBM), it doesn't provide the receipe for restoring growth/competitiveness. We applaud management creating a much strong organization through "nuts and bolts" improvements but secular and competitive pressures remain as intense as ever and we do not believe HPQ's technology asset base is evolving fast enough to keep up." 

-- Written by James Rogers in New York.

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