Despite better-than-expected fourth-quarter results reported
) or H-P, we reiterate our Neutral recommendation on the company
as it provided a less-than-encouraging guidance.
Why the Reiteration?
H-P reported strong fourth-quarter top- and bottom-line
results, although year-over-year comparisons remained unexciting.
Moreover, H-P's first-quarter 2014 guidance remained tepid.
H-P expects its non-GAAP earnings for the coming quarter to
range between 82 cents and 86 cents per share and that for fiscal
2014 to be within $3.55 to $3.75. The Zacks Consensus Estimate
for the first quarter and fiscal 2014 are pegged at 85 cents and
$3.65, respectively. Moreover, H-P expects revenues from Personal
Systems to decline further due to higher commodity costs. The
company also forecasts revenues from Enterprise Group to decline
Nonetheless, H-P expects to gain traction in converged storage
and networking and converged infrastructure. Moreover, H-P's
shift to a high-margin software and services business is expected
to boost results in the long term. H-P's decision to take a
software-and-service centric approach is appreciable.
Additionally, H-P has benefited from the restructuring
initiatives. In fiscal 2013, the company saved approximately $2
billion in labor costs. It expects to save another $1.1 billion
in 2014. The company's operating expenses have decreased 2.9%
year over year in fiscal 2013 due to savings from the labor
restructuring initiative and better alignment of costs to
However, we remain concerned due to the continuing
macroeconomic challenges, sluggish PC sales, tepid IT spending
and stiff competition. Notably, as per data provided by IDC, PC
shipments contracted 5.6% on a year-over-year basis to 82.2
million units in the fourth quarter of 2013. However, the
research firm stated that the PC market in developed economies,
such as the U.S., appeared to be stabilizing, with tablet
cannibalization tapering off.
Currently, H-P has a Zacks Rank #3 (Hold). Investors can also
consider stocks such as
Broadridge Financial Solutions
). While Western Digital and Broadridge Financial carry a Zacks
Rank #1 (Strong Buy), Accenture has a Zacks Rank #2 (Buy).
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