Technology leader HP Inc. (HPQ) - Get Report is set to report earnings on Wednesday after the market close. Wall Street analysts, on average, expect HPQ to report revenue of $12.31 billion on earnings of 42 cents per share.
In a note to investors released early Wednesday morning, Loop Capital initiated coverage on HPQ with a buy rating and a $23 price target. Analyst Ananda Baruah said, "Our valuation work suggests as HPQ executes to our F2019 EPS estimate of $1.80, investors will pay 12 times to 14 times P/E vs. 10 times currently. We further believe HPQ could ultimately be a $25-$28 stock."
The current short interest as a percentage of the float for HPQ isn't much at just 1.88%. That means that out of the 1.68 billion shares in the tradable float, 31.69 million shares are sold short by the bears. However, there's a solid chance for some short covering off a strong quarter, since the short interest ratio for HPQ is 3.3 days-to-cover. A strong quarter could easily squeeze the bears for a few days post-earnings and push this stock notably higher.
With this in mind, let's take a look at the chart for HP and see if it's flashing a buy or sell signal before their earnings report.
If you take a look at the chart for HPQ, you'll notice that this stock has been uptrending a bit over the last two months, with shares moving higher off its recent low of $17.10 a share to its high of $19.58 a share. That uptrend is coming after shares of HPQ formed a double bottom against its June low of $17.14 a share, which confirmed with that $17.10 low in July.
Shares of HPQ are now trending above their 200-day and 50-day moving averages, and right under their 20-day moving average of $19.05 ahead of the quarterly report.
As of last check, HPQ was trending pretty much flat, down 0.60% to $18.90 a share, on lighter volume. Volume Wednesday morning was just over 2.5 million shares, which is well below the three-month average action of 10.74 million shares.
Considering the recent double bottom and the relatively solid uptrend heading into the quarter, shares of HPQ are now setting up for a big breakout post-earnings if the company can report a strong quarter. That potential breakout would easily push the stock into new 52-week-high territory, so the trend is clearly your friend in regards to price action for HPQ.
Traders should now look for long-biased trades in HPQ either before they report to anticipate, or after, if this stock manages to break out above some key near-term overhead resistance levels at its 20-day moving average of $19.05 a share and then above its 52-week high of $19.58 a share with strong volume. Look for volume on that move that hits near or above its three-month average action of 10.74 million shares. Keep in mind, it's important to see a close above those levels for a higher probability of a squeeze higher post-earnings.
If that breakout develops post-earnings, this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $24 to $25 a share, or possibly even north of $25 a share. Traders can simply stop out of this trade idea if HPQ dips back below its 200-day moving average of $17.04 a share with heavy volume after the report.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.