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Hewlett-Packard (NYSE:HPQ) is scheduled to release its 2nd quarter 2013 earnings on Wednesday, May 22nd. Below I have highlighted this quarter's earnings estimates as well as provided a fundamental look at the company's financial position and current valuation.

Profile and Expectations

Hewlett-Packard has a market cap of $41.17 billion and currently trades for $21.18 per share. Shares are up 49.58% YTD and trade 89.52% above their 52-week low of $11.18. Analysts have a mean target price of $19.60 and a median price target of $20.00 on the shares. Twenty nine analysts have an average second quarter earnings per share estimate of $0.81 on estimated revenues of $28.08 billion, 8.5% lower than revenues in the second quarter of 2012.

Financial Position and Valuation

As most people know, the demand for PCs has been falling rapidly due to competition from mobile and tablet devices. Because of this, HP's heavy dependence (approximately 50% [PDF]) on PCs and printers puts it in a very vulnerable position. Last year for instance, sales fell 5.4% to $120.3 billion from the previous year's revenues of $127.24 billion.

Also down last year was cash flow from operations which came in at $10.5 billion, down 16.8% from the prior year's $12.63 billion. From this cash, HP returned to shareholders $1.918 billion in the form of dividend payments ($1.015 billion) and net buybacks ($903 million), much less than the prior year's combined return of $10.065 billion. In relation to this data, HP just recently announced a 10% dividend increase to $0.1452 per share, current yield is 2.5%.

Compared to Dell (NASDAQ:DELL), HP's sales problem gives it a current PEG ratio of (7.65) compared to Dell's 1.28. HP's net margins of (10.9%) also pale in comparison to Dell's low 4.2%, and any other company with a positive net margin for that matter.

Taking this into consideration, HP's consensus EPS estimate for this year of $3.19 gives it a forward P/E of 6.06 based on its current share price of $21.18. In comparison, Dell trades for $13.41 per share and has a consensus EPS for 2013 of $1.50 which translates to a higher, but still low, forward P/E of 8.94.

Take Away

HP has a lot of holes and the real question most investors want to know is when will the falling sales start to level off. Any growth from its non-PC/Printer divisions would help, but combined revenues appear to be headed lower in the short-term regardless. Based on the above analysis, the current valuation seems fair when compared to Dell, but both are low and a smaller than expected revenue decline would go far towards supporting its near 52-week high stock price. Watch for the release on Wednesday, an earnings beat for HP would be the fifth one in a row.

Sources

In addition to the links above, ratios and financial data was sourced from Morningstar.com, which you can find here.

Source: Hewlett-Packard's Second Quarter Earnings Preview