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HP (HPQ) Hits New 52-Week Low: What's Pulling it Down?

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Shares of HP Inc.HPQ plunged to a new 52-week low of $11.31 on Dec 21 and eventually closed at $11.43, representing a year-to-date decline of 37.3%. Average volume of shares traded over the last three months was more than 27,684k.

Why the Plunge?

After about a year of consideration, the tech giant successfully split itself into two standalone companies - HP Inc. and Hewlett-Packard Enterprise HPE - effective Nov 1, 2015. Hewlett-Packard had been struggling to keep pace with the ongoing changes related to smartphones and cloud computing. We don't think that the split will be particularly beneficial in terms of market position given the large number of players specializing in both the mobile and cloud segments. A Zacks Rank #5 (Strong Sell) further confirms weakness in HP Inc.

Also, market challenges (for instance saturation in developed markets and mobile preference in emerging markets) and cost challenges (low-cost manufacturing in Asia has given Asian hardware makers an edge) aren't going away. But separate management teams for HP and HPE might help to pursue and execute better on business and financial goals.

The demand for desktop PCs and printers is not as strong as it was 10 years ago. Both enterprise and consumer demands are shifting toward mobile devices that use the cloud for storage - something that Alphabet's Google GOOGL , Amazon AMZN , Apple and Dell are focusing on.

To add to the woes, in November, Hewlett-Packard reported the last quarterly results for the combined companies, which were disappointing. The company's top line and bottom line declined year over year. Moreover, it issued dismal first-quarter fiscal 2016 guidance for HP Inc., the PC business.

Non-GAAP fourth-quarter earnings of 93 cents missed the Zacks Consensus Estimate of 96 cents and declined from $1.06 reported in the year-ago quarter. The company reported revenues of $25.7 billion, down 9.5% year over year, primarily due to unfavorable foreign currency exchange rates.

The company expects its non-GAAP earnings per share for first quarter fiscal 2016 between 33 cents and 38 cents (mid-point 35.5 cents), while the Zacks Consensus Estimate is pegged at 37 cents.

Things can't be expected to improve materially in the near future as according to Gartner's predictions for 2015 released in September, PC shipments (including premium ultramobiles) will decline 7.3% year over year primarily due to the lack of device replacement and a strong dollar. This was down from the July prediction of a 4.5% decline, which Gartner attributed at the time to the persistent slowdown in Western Europe, Russia and Japan caused by local currency devaluation against the U.S. dollar.

Additionally, estimate revisions have not been favorable. Over the past 60 days, the company witnessed negative estimate revisions for both the current quarter and fiscal 2016. The Zacks Consensus Estimate consequently moved down 58% to 37 cents per share and 55% to $1.62 per share for the current quarter and fiscal 2016, respectively.

Going forward, macroeconomic challenges and tepid IT spending remain concerns. Competition from International Business Machines and Oracle further add to the woes.

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


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

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