HP: Wall Street Watches for Signs of Progress

NEW YORK ( TheStreet) -- HP ( HPQ) reports its third-quarter results after market close with investors keen to see whether CEO Meg Whitman can make more progress at the embattled tech giant.

Last quarter, HP comfortably beat Wall Street's estimates, boosted by better-than-expected performance in Enterprise Services and Printing, as well as savings from the firm's massive restructuring efforts and improved operations.

Analysts surveyed by Thomson Reuters are looking for HP to report revenue of $27.29 billion and earnings of 86 cents a share, down from $29.67 billion and $1 a share in the same period last year.

"We believe HP has several levers to improve its operational performance in FY2014," wrote Keith Bachman, an analyst at BMO Capital Markets, in a note released on Wednesday. "We believe that it can report positive EPS growth in FY2014 even with declining revenues."

Bachman, who raised his HP target price to $30 from $24, pointed to the potential profit impact of the company's restructuring. "We think HP's stock can grind higher," he wrote. "We are surprised that HP has not seen greater benefit from restructuring thus far."

The analyst, who rates HP "market perform" also raised his 2013 earnings estimate to $3.59 from $3.52 and his 2014 earnings estimate to $3.85 from $3.60.

The PC maker's stock has risen more than 78% this year, as Whitman attempts to get HP back on track. The CEO has earned praise for her efforts to turn around the tech giant, specifically her transformation of the company's balance sheet.

The former eBay ( EBAY) chief is 20 months into an ambitious five-year plan to revitalize HP, and recently said that the company's turnaround is "just a bit" ahead of schedule.

Whitman has described fiscal 2013 as "a fix and rebuild year," with "recovery and expansion," "acceleration" and "industry-leading competition" characterizing the years 2014 through 2016.

The CEO replaced the ousted Leo Apotheker in September 2011 and has worked hard to streamline the tech giant's vast operations and set a clear strategic direction.

Key moves include nixing Apotheker's highly controversial plan for a possible PC spinoff and merging the company's PC and printer divisions in an attempt to combat falling hardware sales. In June, Whitman also shuffled the leadership of the firm's Printing and Personal Systems group (PPS).

Last month, HP also expanded its board of directors, bringing in former Liberty Media ( LMCA) CEO Robert "Dob" Bennett, former Microsoft ( MSFT) Chief Software Architect Ray Ozzie and former McDonald's ( MCD) CEO James Skinner.

"HPQ has been making progress on its 'fix and rebuild' mission for FY13 and this has been well reflected in the stock," wrote Brian Marshall, an analyst at ISI Group, in a recent note. "In our view, CEO Whitman has deftly balanced major cost cutting activities and simultaneously investing in new product innovation (e.g., multi-function printers, HAVEn big data analytics platform, expanded 3PAR offerings, 'IT in a Box' for SMB, etc.) that are beginning to bear fruit."

In June, HP unveiled a host of big data initiatives, keen to tap into one of the hottest trends in tech.

Big data refers to the management of vast quantities of unstructured data, or information that is outside the realm of traditional databases. Examples include email messages, PowerPoint presentations, audio, video and social media information.

ISI Group's Marshall, however, warns that the rapid shrinkage in the PC market still poses huge challenges for HP, even after its "nuts and bolts" internal improvements. "While HPQ has done a good job recently managing expectations and setting a low bar for itself, we believe recent comments suggesting revenue growth is a 'possibility' in FY14 will prove too optimistic," he wrote.

Last week PC rival Dell ( DELL) reported fiscal second-quarter revenue of $14.5 billion, flat year over year. Revenue from the company's End User Computing division was down 5% over the same period.

HP shares slipped 1.01% to $25.58 during Wednesday's trading.

--Written by James Rogers in New York.

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