Hewlett-Packard Vs. Dell: Which Is The Better Buy?

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Includes: DELL, HPQ
by: Karin Hernandez

JPMorgan yesterday cut its price targets on many hardware companies, including both Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Co. (NYSE:HPQ), citing weak IT spending in Europe, concerns about growth in China, and the negative impact of the strong dollar on exports. Time to take a look at Hewlett-Packard and Dell and decide which is the better buy.

In my analysis, I tend to rely heavily on analyst opinion and estimates. I figure they have been studying the stock for a while and probably have a better handle on the numbers than I do. I do look at current news, as well, but I like to lean more on the numbers to provide an objective recommendation.

Hewlett-Packard

Hewlett-Packard is currently trading at about $19, right at its 52-week low of $19.24. It has a P/E of 7.5 and pays a 2.7% dividend. The current analyst rating is a 2.7 (1.0 = Strong Buy, 5.0 = Sell) with a mean target price of $27.86. There are 5 Strong Buy recommendations, 4 Buys, 14 Holds, and 5 Underperforms.

The fiscal-year 2012 consensus earnings estimate is $4.07, which is down 17% from the actual 2011 earnings of $4.88. The estimate for fiscal-year 2013 is $4.42, 9% higher than 2012. The stock is down 24% year-to-date, and down 44% from this time last year. The current estimated annual growth rate for the next 5 years is 3.42%, compared to an industry average of 11.94% and a sector average of 17.76%.

Dell

Dell is trading at approximately $12 per share, just off its 52-week low of $11.68. It has a P/E of 6.8 and pays no dividend. Currently, analysts rate it a 2.3 (9 Strong Buys, 5 Buys, 14 Holds, and 2 Underperforms) with a mean target price of $16.04.

Dell's fiscal-year 2012 consensus earnings estimate is 1.94, 9% lower than actual 2011 earnings. Its estimate for fiscal-year 2013 is $2.03, 5% higher than 2012. The stock is down 19% since the beginning of 2012, and down 26% from a year ago. Current 5-year annual growth is estimated at 6.13% vs the S&P at 10.86%.

Outlook

Both companies are struggling at 52-week lows. Dell and Hewlett-Packard combined accounted for 51% of all PCs shipped in the first quarter of 2012, but many concerns are keeping the category soft. Along with the international woes, the newly announced Microsoft (NASDAQ:MSFT) tablet may hurt future sales of PCs and especially laptops. Both companies will release earnings in August, so analysts will be looking closely at the numbers then.

Conclusion

Eventually, however, I go back to the numbers. With Hewlett-Packard's current P/E and year-end 2013 earnings estimate, I see a stock price of $33, or upside of 71%. Dell's P/E and earnings estimate leads to a stock price of $13.50, or 16% upside.

Hewlett-Packard definitely looks like the better buy to me.

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