In the context of this summer’s rally in tech
, HP’s (NYSE: HPQ) 50% move upwards has been slow and steady. Shares have followed a nice trend line north and while they’re not quite back at pre-COVID levels,
they’re definitely getting there.
Even as some weakness creeps into equities overall, HP has avoided taking the big haircuts like some of their peers have. And with plenty of catalysts for investors to look forward to in the coming months, the current dip is starting to look like an attractive entry point.
On Wednesday of this week, UBS added to the long case as they initiated coverage on the $25 billion tech company with a Buy rating. Analyst David Vogt slapped a fresh price target of $25 onto the shares which points to a move of more than 30% to the upside. Having weathered the first half of the year surprisingly well, the company is now in a strong position for growth. Vogt is a fan of their conservative balance sheet and strong cash conversion, two key factors which will see them through any near-term headwinds.
Bullish Catalysts
The upgrade comes after HP beat analyst expectations with their fiscal Q3 earnings last month. Even though revenue was down 2% year on year, it was a full 7% higher than the consensus. It looks like some one-time, non-recurring expenses were to blame for the contraction and investors weren’t slow about shaking it off. The sentiment on Wall Street was very much that HP was coming out of the first round with COVID much stronger than expected.
As CEO Enrique Lores said at the time, "our strong Q3 results and solid beat for the quarter, in the face of unprecedented uncertainty, reflects the agility of our teams and the strength of our portfolio. We're leveraging our leadership across consumer and commercial markets to capitalize on opportunities - from the essential role of the PC in an era of remote work and school to the rise of subscription-based business models to enable greater flexibility. Our diverse portfolio and disciplined execution are powering our performance and we're well positioned to drive continued value creation."
Also on a positive note, management’s forward guidance for EPS Q4 and FY20 was higher than expected so there’s plenty for new and old investors to be excited about. HP has a very attractive share buyback program motoring along nicely, and actually accelerated its purchasing last quarter when shares were at multi-year lows. With $2.5 billion expected to be generated in free cash flow, there’s every reason to think a dividend hike is on the cards as well.
Getting Involved
The current dividend yield of 3.85% is a big selling point for the long term investors who're thinking of getting involved. While the company might have a ways to go yet before it’s trading at all time highs, it’s willing to pay investors well for their patience as they get there.
All in all, HP is starting to look like a sleeping giant who has huge potential to awaken in the coming months. Wall Street has started to sit up and take notice and we should be seeing additional upgrades starting to flow in. They’ve been around the block a lot longer than many of their tech peers and shares look to be at the start of an uptrend that will rival their 2016 to 2018 rally.
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