Hewlett-Packard (HPQ) is set to release fourth quarter fiscal 2021 results after Tuesday’s closing bell. Investors want to know if now is the right time to bet on HP stock; rising demand for personal computers could be the key in that assessment.
With the pandemic disrupting in-office and in-person activity across many industries, this has driven millions of consumers across the globe to work and learn from home. As such, the need for better and faster computers have sent PC sales soaring, posting their strongest growth in more-than a decade during the third quarter, according IT research firms Gartner and IDC. Notably, this is despite disruptions in the global supply chain due to the chip shortage.
Worldwide, PC sales grew 5% sequentially in the third quarter, reaching 84.1 million units. On a year-over-year basis, shipments of notebooks and mobile workstation rose 3% to 67.4 million units, while desktop shipments jumped 12% to 16.6 million units. All of this growth should benefit HP which has seen its stock rise 10% over the past month and 28% year to date, besting the 25% rise in the S&P 500 index. And when looking back over the past year, the stock has returned 53% compared to the S&P’s 31% rise.
Whether HPQ stock can continue to outperform will depend on what the company says on Tuesday. Investors will want strong evidence that HP can sustain its recent revenue growth, particularly given that Q3 PC shipments have risen at such an impressive rate. The company’s commercial hardware and supplies revenue, which have underwhelmed in recent quarters, will also be closely-watched. All told, HP’s revenue forecast for the all-important holiday quarter will be critical, as well as its outlook the first quarter and full-year of fiscal 2022.
For the three months that ended October, Wall Street expects Hewlett-Packard to earn 88 cents per share on revenue of $15.40 billion. This compares to the year-ago quarter when earnings came to 62 cents per share on revenue of $15.26 billion. For the full year, earnings are projected to rise 63.5% year over year to $.73 per share, while full-year revenue of $62.26 billion would rise 9.9% year over year.
In the third quarter, the company reported mixed earnings results in which adjusted EPS of $1 per share came in well ahead of Street estimates of 83 cents, while revenues grew just 7% at $15.3 billion, missing expectations by about $600 million. Beyond some flat PC sales, revenue was impacted by weakness in the company's core personal systems operations segment which was flat at $10.4 billion. Consumer net revenue rose 3%, while commercial sales were a bit disappointing, falling 1% year over year.
But it wasn’t all bad news as printing revenue rose 24% to $4.9 billion, producing almost 18% operating margin. Likewise, consumer printing revenue rose 15%, and commercial sales climbed 46%, while supplies net revenue rose 20%. The company showed solid overall progress in its business transformation and enhanced service offerings. The market will want to see if HP can build on these results and continue to accelerate growth opportunities across its portfolio.
The decline in Q3 commercial hardware and supplies revenue was notable. Will that trend continue on Tuesday? As such, the company’s Q4 performance in that segment will be closely-watched. And with regards to the strong Q3 PC shipments, on Tuesday investors will want to see how much of that growth Hewlett-Packard has captured.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.