Q1 Preview: H-P (HPQ) Faces PC Challenges, But Corporate Spend May Buoy Numbers

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Hewlett-Packard Co. ( HPQ ) shares are trading lower ahead of its first-quarter 2012 report, expected out after the market closes Wednesday.

The Street sees Hewlett-Packard reporting a 36 percent drop in earnings to 87 cents per share on revenue of $30.7 billion. Over the last five quarters, Hewlett-Packard has beat Street views by an average of 3.1 percent.

Shares gained 5.6 percent to $27.98 over the quarter and are about $1 higher since.

Investors might take a look at what Dell did in the quarter since it's direct competition to Hewlett-Packard. Revs were strong for Dell, but margins have been compressed amid HDD supply issues which reduced supplies and drove up prices. That said, Dell also had older inventory which helped it to mitigate some of the changes, but not enough to help Dell beat on the bottom line.

Data from Bloomberg shows 11 analyst firms rate H-P shares a Buy, 17 with a Hold, and five at Sell. The Street's price target average is $31, with a low of $20 and high of $39.

Analyst Comments

  • Goldman sees revs of $30.394 billion and EPS of 86 cents for the quarter. Goldman sees the numbers as a non-event with investors expected to focus more on guidance. This should be a transitionary quarter for PCs. Goldman said, "We expect the Personal Systems Group (PSG) to post significant weakness in what was likely another transition quarter as Hewlett-Packard worked with customers to reaffirm its commitment to the space following its strategic review of the division last year."

    Goldman believes a strong end to 2011 will bolster Hewlett-Packard's Enterprise Servers, Storage and Networking (ESSN) division. Results and commentary from both IBM ( IBM ) and EMC ( EMC ) point to the same.

    Finally, the firm said Printing will be key for HP: "We continue to believe that the Imaging and Printing Group ( IPG ) remains key to the recovery story at Hewlett-Packard in 2012, though results likely remained under pressure in the January quarter. Our forecast calls for revenues of $6.08 billion and an operating margin of 12.4%. With the company facing challenges across most of its businesses this quarter, continued cyclical pressures and inventory issues IPG are likely to keep a lid on results but are also likely to be the source of any upside to the company's guidance for the year."

  • Wells Fargo sees revs of $30 billion and EPS of 84 cents. The firm is bullish on Meg Whitman and believes Hewlett-Packard could at least achieve its views. Into the numbers, Wells Fargo said, "While we expect PC units for the quarter are on track with our estimate of 93MM (3.6% q/q growth) we are now forecasting Hewlett-Packard's units will come in a little bit lower than expected. Server revenues are likely to come essentially where we expected, and we believe that the lower than expected PC variance will be offset by the other enterprise businesses."

  • Deutsche Bank sees EPS of 86 cents and revs of $31.33 billion. The firm sees a beat on lowered expectations, conservative guidance, and benign pricing. "We believe Hewlett-Packard benefited from relatively healthy corporate demand in PCs & x86 Servers. However we expect weakness in Consumer PCs (iPad cannibalization) and Printing coupled with in-line Services will result in below consensus revenues. Nonetheless, we expect mix, cost cutting, past restructuring charges and favorable commodity/ input cost to support margins and modest EPS upside."

  • Brean Murray sees top-line risk for HP from PC revs and laser printers. "While we expect HP to reiterate its FY12 EPS guidance of at least $4.00, we note that the Street is at $4.09 and we'd feel as though HP may have a few more revenue challenges ahead of itself entering the year." EPS should be 84 cents on revs of $31.21 billion.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Hewlett-Packard's past performance at Streetinsider's Hewlett-Packard's Income Statement .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: EMC , HPQ , IBM , IPG

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