Why You Will Regret Missing The Hewlett-Packard Gravy Train

| About: HP Inc. (HPQ)


Hewlett-Packard’s performance has gradually improved and the company’s strategies could take it higher.

HP’s introduction of new products and services should help the company sustain its momentum.

HP’s foray into the 3D printing market is yet another growth driver.

HP’s strong cash flow generation and cheap valuation make it a stock worth investing in.

PC-giant Hewlett-Packard (NYSE:HPQ) has surged 16% this year, and the company once again received a shot in the arm just recently when it said that it will announce its 3D printing plans by October this year. Hewlett-Packard is gradually seeing improvements in the business and it looks set to get even better in the future.

New products gaining momentum

HP is witnessing strong sales of personal computers to businesses that are buying new machines for their employees before Microsoft (NASDAQ:MSFT) stops supporting Windows XP in April. Going forward, HP plans to roll out significant innovations that will strengthen its offerings in the cloud, security, big data, and converged infrastructure markets. It also plans to introduce new technologies, such as 3D printing and believes that it will be able to return to revenue growth with new and innovative products.

As a result, HP had organized its Annual Innovation Showcase for its European customers at Barcelona. It used this as a platform to introduce new technologies. HP has launched a converged system portfolio, which is an integrated IT system that uses HP's servers, storage, and networking technology. It is customized for specific tasks such as virtualization, big data, and hosted desktops. This will enable HP's clients to go from order to operations in just 20 days, reducing lead times and helping consumers reduce their time to market.

Cloud, Autonomy, and more positives

With the cloud emerging as the future of data and storage, HP has introduced its next generation cloud solution, CloudSystem 8, to address this market. This will allow enterprises to build a private cloud and deploy cloud services in just a few hours rather than days. In addition, HP has launched a hybrid cloud management platform that will allow IT managers to deliver applications and services more efficiently to their users. HP is the leader in private cloud computing, according to Forrester Research, and the deployment of this new platform should help HP improve further.

In addition, HP's Autonomy is also finding momentum. Autonomy launched Idol 10 and Data Protector 8.1, which are the industry's first adaptive and self-aware backup and recovery solutions. Also, China Mobile (NYSE:CHL) has selected Autonomy's Idol to power the search capability of its strategic wireless city platform. This will enable China Mobile's users to access information on several public services, directly from their mobile phones.

However, HP's revenue from business critical systems segment has continued to decline due to competitive pricing. But HP is determined to improve this situation. It is improvising on its product mix according to the requirements of the market and along with cost cutting strategies, management is hopeful that this segment's margins will improve in the future.

Being a diversified business, HP is innovating on various fronts. In personal computing, it is creating new types of devices, which will be deployed in the next few months. HP's phablets, which are a hybrid of phones and tablets, might prove to be a breakthrough for the firm in emerging markets such as India and China, where large screen phones are popular.

Looking forward, HP will continue to focus on generating strong cash flow and its restructuring plans. Major analysts such as Citi's Jim Suva are very positive regarding HP's outlook and cash flow generation. HP reported an overwhelming cash flow of $3 billion as compared to analysts' expectations of $500 million to $1 billion in the first quarter. According to Suva, "This will provide adequate funds for stock repurchase, dividends, and smaller strategic M&A." All in all, it can be said that HP is enjoying several tailwinds and looks set to outperform in the future.

3D entry

Moreover, HP is quite optimistic regarding its prospects in the 3D printing market. HP management believes that global sales of 3D printers and related software and services will grow at a remarkable pace to $11 billion by 2021. This would be a big jump from just $2.2 billion a couple of years back. Moreover, as Reuters reported, CEO Meg Whitman is of the opinion that "HP's inhouse researchers have resolved limitations involved with the quality of substrates used in the process, which affects the durability of finished products."

Hence, HP looks to be in a solid position to benefit from the growth of the 3D printing market.

Valuation and takeaway

HP has a low trailing P/E of 11.93, and an even lower forward P/E of 8.48. So, the stock offers strong growth prospects at a very cheap valuation. It is looking to introduce new products, is making an entry in the 3D printing market, and making impressive moves in cloud and infrastructure spending. Hence, investors should continue benefiting from HP's positive moves in the long run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.