Hewlett-Packard Company (HPQ): Positive Outlook With Caveats

Hewlett-Packard Company (HPQ): Positive Outlook With Caveats
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Stifel analysts take a close look at Hewlett-Packard Company (NYSE:HPQ) recommending that investors take a closer look at their latest financial results in order to come up with the right perception of the company.  They have a Hold rating on Hewlett-Packard.

While we believe investors could question some of the moving parts toHewlett-Packard Company (NYSE:HPQ)’s F1Q14 results (e.g., ~$0.06/sh. one-time EPS benefits; adjusted non-GAAP EPS at $0.84 vs. reported $0.90; also expect focus on decelerating enterprise hardware EBIT% and a 340bps seq. decline in HP’s Ent Services EBIT%), overall we believe the takeaways are positive, especially when considering the current valuation. With net operating cash ~$1.6B (excluding HPFS) we find shares trading at ~4x EV/EBITDA and at ~8.4x EV/FCF (12% yield).

Q1 2021 13F Round-Up: Notable Hedge Fund Changes

investBelow is our 13F roundup for some high profile hedge funds for the three months to the end of March 2021 (Q1). Q1 2021 hedge fund letters, conferences and more The statements only include equity positions as 13Fs do not include cash and debt holdings. They also only include US equity holdings. Funds may hold Read More

Estimates; F2014 FCF Upside. We adjust our F2014 and F2015 estimates from $109.8B/$3.64 and $110.2B/$3.70 to $112.2B/$3.71 and $112.6B/$3.80, respectively. HP has guided F2014 non-GAAP EPS at $3.60-$3.75/sh. vs. prior $3.55-$3.75/sh. – inclusive of one-time F1Q14 impacts, as well as an incremental $0.02/sh. negative impact from higher reinvestments. We would remind investors that HP’s non-GAAP EPS includes stock-based comp (negative ~$0.20/annum). HP did state that it sees some upside potential to the targeted $6.0-$6.5B – reflective of a solid $1.993B generated in F1Q14 as the company continues to benefit from strong working capital management. HP’s CCC stood at 15.9 days (vs. 24 day in yr. ago quarter); company now sees sustainable downside to prior ~20-21 day range (focus on days payable and PSG mix going forward).

Segment Highlights. 1.) Enterprise Servers, Storage, & Networking. Revenue totaled $4.87B, roughly in-line with our $4.93B estimate. While we saw solid outperformance in ISS revenue – +6% yr/yr vs. IBM at -16% yr/yr – and we continue to see HP’s storage results as a positive, our model would imply another quarterly decline in enterprise hardware EBIT margin – we estimate slightly below 6% (note: IBM’s disclosed its sold x86 business running at a breakeven EBIT). HP’s converged storage revenue grew 42% yr/yr (vs. +47% yr/yr in F4Q13); combined 3PAR + EVA + XP revenue up 13% yr/yr. vs. our estimate of combined EMC, NetApp, HDS, & IBM storage up 3% yr/yr. HP’s networking revenue grew 4% yr/yr w/ noted improving momentum and switch revenue at +5% yr/yr (vs. Cisco at -2% yr/yr). 2.) PSG. Revenue totaled $8.53B (+4% yr/yr) vs. our $7.7B estimate; EBIT% at 3.3% or flat seq. as HP appears to strategically walking away from lower margin opportunities. 3.)Ent. Services. $5.6B in rev. was below our $5.9B est., though expect more focus on reported 1% EBIT vs. retained 3.5%-4.5% F2014 target w/ ongoing low-margin burn-off. 4.) IPG. Rev. at $5.8B was in-line w/ our estimate; EBIT at 16.8% (-110bps) w/ slightly richer supplies mix.

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