JPMorgan yesterday cut its price targets on many hardware companies, including both Dell Inc. (DELL) and Hewlett-Packard Co. (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 (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.
