Seeking Alpha
Long/short equity, momentum, special situations
Profile| Send Message|
( followers)  

By: Brendan Gilmartin

Hewlett Packard (HPQ) is scheduled to report 2Q 2012 earnings after the closing bell on Wednesday, May 23. Results are typically available at 4:05 p.m. EST and will follow with a conference call at 5:00 p.m. HP is a member of the with significant market influence and the potential to impact the index futures and broader market gauges. Results on Tuesday from Dell (DELL) could also influence the direction of HP shares.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share: HP announced back in February it estimates 2Q 2012 Non-GAAP diluted EPS in the range of $0.88 to $0.91. The current Street estimate is $0.91, with the high end of the Street at $0.97 (Source: Yahoo! Finance).
  • Revenue: Revenues are seen slipping 5.4% to $29.92 bln for the 2Q 2012 period.
  • Adjusted Earnings Per Share Guidance (FY2012): HP previously said it expects FY2012 non-GAAP diluted EPS of "at least" $4.00. The current consensus is $4.04.

HP is now trading at just 4.87x forward earnings, and a mere 0.34x sales following the nearly 40% drop in the share price over the past year. The trailing P/E of 7.7x is a steep discount to the 5-year average of 13.1x.

Recent News

· 05/21: Sterne Agee maintained a Buy rating on HP but lowered the price target from $34 to $31, according to a post on StreetInsider.com. The firm expects revenues for the 2Q period to come in shy of estimates, but EPS to be slightly higher as a result of more stable PC market conditions. The outlook, however, is at risk due to the macro backdrop in Europe and Cisco Systems' (CSCO) warning on lower enterprise spending.

· 05/17: HP declared a regular cash dividend of $0.132 per share on the company's common stock. The yield is 2.19%.

· 05/17: According to a report on Bloomberg.com, HP is considering reducing its workforce by up to 25,000 employees in an effort to cut costs and mitigate the impact of weaker computer demand and services. The enterprise services group may reportedly see the most layoffs due to declining profitability within the group.

· 04/11: Gartner Inc. reported PC shipments rose 1.9% in the 1Q 2012 period, exceeding its earlier forecast for a 1.2% decline. HP increased its share to 17.2% of worldwide PC shipments. However, the report showed consumer PC demand remained weak.

Technical Review

HP shares recently sunk to a 52-week low of $21.28 (5/18). This will be the only near-term support level given the shares are sitting at levels not seen in close to 7 years. Should earnings surprise to the upside, there is initial resistance near $23, followed by the 20-Day SMA/50-Day SMA crossover near $24. Furthermore, the Relative Strength Index (RSI) at 31.39 recently signaled an oversold scenario (readings < 30 indicate oversold), implying a potential bounce may be in store. (Chart courtesy of StockCharts.com)

Summary

HP shares recently sunk to a 7-year slow amid evidence of slower PC demand, softness in Europe, weaker enterprise spending, and a tepid outlook from Cisco Systems. Recent talk of massive layoffs and spending cuts helped to ease concerns ahead of 2Q results, while the shares are trading at a mere 7.7x trailing earnings, well below the 5-year average of 13.1x. Against this cautious backdrop, anything positive from Wednesday's release could trigger a turnaround in HP shares. Aside from the actual financial performance, clarification on expense cuts and the turnaround strategy can be expected to influence the share price. Finally, results from rival Dell after the closing bell on Tuesday, May 22 could impact HP shares ahead of earnings.

DISCLAIMER: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Source: HP Sinks To Multi-Year Lows Ahead Of 2Q 2012 Earnings