HP Pops Despite Missed Sales: What Wall Street's Saying

NEW YORK (TheStreet) - HP's (HPQ) fourth-quarter earnings results came in as expected, but trouble with the quarter's top line has some analysts wondering if CEO Meg Whitman and the executive team are too focused on the company's planned split and not enough on its core businesses.

Watch the video below for a look at HP's latest quarterly results:

HP reported after the bell on Tuesday adjusted earnings of $1.06 a share. The company had previously forecast the quarter's earnings per share between $1.03 and $1.07. The company earned $1.01 a share in last year's quarter. Earnings on a GAAP basis came in at 70 cents a share versus HP's forecast of 67 cents to 71 cents a share.

Revenue fell 2% compared to the prior year's quarter to $28.4 billion, whereas analysts had expected revenue of $28.76 billion. HP reaffirmed its non-GAAP earnings forecast for 2015 of $3.83-$4.03 a share. It expects first-quarter non-GAAP earnings between 89 cents and 93 cents a share. Consensus estimates called for earnings of 92 cents a share for the first quarter.

Shares were trading up 2.5% to $38.57 on Wednesday. Here's what analysts said.

Ben Reitzes, Barclays (Overweight, $44 PT)

"We believe the in-line quarter and maintained FY15 outlook are enough into the much-anticipated split of the company in about 10 months. So far, the tone seems confident and disruption has been minimal - while margins are improving in services, the most troubled segment. Though revenues need to come down a bit due to currency, we believe each business is showing some gross margin progress. With the buyback picking up and the model basically intact, we see room for further appreciation in the shares due to valuation. We maintain our OW rating and price target of $44 based on our SOTP analysis."

Keith Bachman, BMO Capital Markets (Market Perform, $42 PT)

"We think the Q reflected HP's ongoing challenge of weak revenue growth and strong margin performance. While HP's compares were difficult, we nevertheless believe that, for the stock to work, HP needs to demonstrate improved revenue growth. However, each of HP's core markets faces revenue challenges. Hence, we project revenues to decline in FY2016.

We are maintaining our Market Perform rating on HPQ. We think the stock will probably drift higher over time, helped by the company split, which will raise the visibility of HP's relatively low multiple. However, we have ongoing questions: 1) Will total costs increase in FY2016 post-split, since HP will have to carry two public companies? 2) Can HP grow revenues, even post-split (more nimble and more focused)? Until we satisfy our concerns surrounding these two questions, we choose to sit on the sidelines."

Sherri Scribner, Deutsche Bank (Buy, $45 PT)

"HPQ reported in-line F4Q-14 EPS but slightly missed revenue expectations, and guided F1Q-15 EPS marginally below Consensus. Strength came from personal systems, industry standard servers and networking, which was offset by weakness in enterprise and consumer PC's. HPQ is now 3 years into its 5 year turnaround, with additional benefits to come in FY-15 and from the split of the company into two businesses. We continue to be positive on the turnaround at HPQ, and on management's continued track record of execution. With shares trading below peers, we view valuation as attractive and maintain our Buy."

Brent Bracelin, Pacific Crest Securities (Outperform, $40 PT)

"Mixed enterprise results and management's focus on the separation process increases execution risk for 2015. Despite lowering our revenue estimates, we are maintaining our Outperform rating based on the separation that could enhance shareholder value and justify upside to $40."

TheStreet Ratings team rates HEWLETT-PACKARD CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate HEWLETT-PACKARD CO (HPQ) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, HPQ's share price has jumped by 48.07%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • HPQ's revenue growth trails the industry average of 13.7%. Since the same quarter one year prior, revenues slightly increased by 1.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, HEWLETT-PACKARD CO has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for HEWLETT-PACKARD CO is currently lower than what is desirable, coming in at 27.22%. Regardless of HPQ's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HPQ's net profit margin of 3.57% is significantly lower than the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Computers & Peripherals industry. The net income has significantly decreased by 29.1% when compared to the same quarter one year ago, falling from $1,390.00 million to $985.00 million.

-Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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