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Hewlett-Packard (NYSE:HPQ) reports fiscal Q1 2014 financial results after the closing bell on Thursday, February 20th, 2014.

Per Thomson Reuters, current analyst consensus is expecting $0.84 in earnings per share (EPS) on $27.173 billion in revenues for expected year-over-year growth of 4% and -4%, respectively.

The consensus estimates for Q1 2014 have remained relatively stable since the November earnings report, with the EPS being revised slightly lower - from $0.85 to $0.84 the last three months, while the consensus revenue estimate has been revised slightly higher, from $27.167 billion to $27.173 billion in the last three months.

For full year fiscal 2014, the Street is currently expecting $3.67 in EPS on $109.3 billion in revenue for expected year-over-year growth of +3% and -8%, respectively.

If the Q1 2014 estimates are met, this will be the first full quarter of y/y earnings growth for HPQ since July 2011. If the full year EPS estimates are met, this will be the first year of positive earnings growth for HPQ also since 2011.

HPQ by segment
Revenues
* Personal Systems 29%28%27%29%29%29%31%30%31%
* Printing 21%21%22%21%20%20%20%21%20%
Total Printing and PSG 50%50%50%50%49%49%51%50%51%
* Services 20%21%22%21%29%30%21%21%29%
* Enterprise Servers 26%25%25%25%17%17%25%24%17%
* Software 4%4%3%3%4%3%3%3%3%
* HP Financial Services 3%3%3%3%3%3%3%3%3%
* Corporate Investments 0%0%0%0%0%0%0%0%0%
Total Segments 103%103%103%102%103%103%103%102%103%
* Intersegment rev's -3%-3%-3%-2%-3%-3%-3%-2%-3%
Total HP Consolidated net rev 100%100%100%100%100%100%100%100%100%
Operating Income
* Personal Systems 8%9%9%9%9%13%17%16%21%
* Printing 35%35%36%38%32%31%26%26%29%
Total Printing and PSG 43%44%45%47%41%44%43%42%49%
* Services 8%7%6%3%37%31%8%5%44%
* Enterprise Servers 36%40%41%43%13%18%43%46%26%
* Software 11%8%7%6%9%6%6%6%10%
* HP Financial Services 3%4%4%4%3%3%3%3%4%
* Corporate Investments -2%-2%-2%-3%-2%-2%-2%-2%-33%
100%100%100%100%100%100%100%100%100%

* Source: internal spreadsheet from HPQ 10-Q and earnings reports

As the reader can quickly see, when you break down HPQ's revenue and operating income by business line, PCs and printers are still half the business with Enterprise Servers growing quickly as well.

Although the secular PC growth rates of the 1990s are long gone, with the cessation of support for Windows XP, and given its base still, might the PC business get a boost from a round of PC upgrades in Corporate America?

HPQ segment: y/y growth7/14 q34/14 q21/14 q110/13 q47/13 q34/13 q21/13 q110/12 q4
Revenues
* Personal Systems -1%-11%-20%-8%-14%
* Printing -1%-4%-1%-5%-5%
Total Printing and PSG -1%-8%-12%-7%-11%
* Services -34%-33%-8%-7%-6%
* Enterprise Servers 48%32%-10%-4%-9%
* Software -9%1%-3%-2%14%
* HP Financial Services -6%-6%-9%1%1%
* Corporate Investments -62%-74%43%-87%-110%
Total Segments -3%-8%-10%-6%-7%
* Intersegment rev's 2%-2%-18%-19%-26%
Total HP Consolidated net rev -3%-8%-10%-6%-7%
Operating Income
* Personal Systems -16%-44%-54%-51%-47%
* Printing 0%-4%19%25%35%
Total Printing and PSG -3%-16%-10%-4%0%
* Services -79%-80%-34%-48%2%
* Enterprise Servers 161%84%-18%-18%-41%
* Software 3%15%5%-3%12%
* HP Financial Services -2%2%1%11%6%
* Corporate Investments -31%0%17%30%-91%
Total -9%-16%-14%-13%22%

Source: Internal spreadsheet from HPQ 10-Q's and earnings reports

Again, as the reader can quickly see, the Personal Systems and Printing Groups as of last quarter had their best quarter of y/y revenue and operating income growth in the last few years. Although it was still declining, the rate of erosion is starting to stabilize and even improve. HPQ is sacrificing margins to do this (margin table not attached), but to maintain market share something has to give, and right now that is margins.

Technically, HPQ is testing a significant resistance level on the charts at $30 per share. My own opinion is for that 50- and 200-month convergence point to be taken out (i.e. for the stock to trade above this level on heavy volume), HPQ will need to start driving revenue growth, even if only in the low-single-digit range. That should start to produce high single digit to low teens earnings growth, which hasn't been seen by HPQ in some time.

(click to enlarge)

Source: Technical software, Worden Telechart Gold

I like how this monthly HPQ chart looks.

From a valuation perspective, HPQ at $30 per share is still trading at 3.5(x) cash-flow (ex cash) and just 5(x) free-cash-flow (ex cash) with a 16% free-cash-flow yield to boot.

Morningstar's intrinsic value estimate of HPQ is currently $26, while our internal earnings-based model, using a forward earnings estimate, puts an intrinsic value estimate on HPQ at $33, so at its current level, for many investors the discount to perceived intrinsic value may not warrant a new position at these levels.

When you look at HPQ's cash-flow statement, management and the Board are only returning about 30% of free-cash-flow currently, so there is definitely further room for "shareholder friendly" return-of-capital action. Management has also paid down about $10 billion in debt since April 2012, when they had $25.8 billion of long-term debt outstanding, where today they have just $16.6 and it is still declining.

To be truthful, there is little I do not like about HPQ at this point in time, with the exception of the technical resistance and the need for some meaningful longer-term growth. I think Meg Whitman has done a great job at steering the company through a difficult period after being dealt a very tough hand.

Meg seems very tough: it isn't about "lean in" or peer in or bend over, or the latest Silicon Valley hipster management meme. When HPQ had a problem with China in the July 2013 quarter and HPQ "mis-executed," the senior executive was quickly replaced. The Autonomy acquisition as clearly a mistake and it is being dealt with and the resultant goodwill written off.

I wouldn't be surprised if the stock spends more time consolidating around this $29 - $30 level, but during the January 15 - early February pullback in the stock market, HPQ didn't budge: it showed very positive relative strength during the recent 5.5% - 6% correction in the S&P 500.

In short, the first sign that Meg and the management team can guide to even low-single-digit revenue and EPS growth, my bet would be that the stock trades about the $31 resistance, and runs again.

There are some prominent shorts still in the stock, like Jim Chanos and his crew, but HPQ's cash-flow gives me comfort that the company is on the recovery track.

Disclosure: I am long HPQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Hewlett-Packard Earnings Preview: At Technical Resistance, But Valuation Very Reasonable

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