Here's Why HP Inc. Is Poised To Outperform

| About: HP Inc. (HPQ)


HP's stock received a boost helped by PC shipment data from IDC.

Execution of restructuring and productivity initiatives will lead to stabilization in top line.

Acquisition of Samsung's printing business to help scale up and acquire bigger market share.

Following better-than-expected first quarter results in Feb'17, HP Inc. (NYSE: HPQ) is back with some good news for its shareholders. According to the latest data from IDC, the company has reclaimed the crown of world's top PC supplier from rival Lenovo Group (OTCPK:LNVGY). In Q1'17, worldwide PC shipments grew by 0.6% to 60.3 million units over the same period last year, helped by solid laptop shipments by HP, especially in North America. HP also witnessed a rebound in demand for PCs in Europe, with Asia-Pacific demand remaining subdued.

Post separation, HP has gone from strong to very strong by removing over $1.0bn of excess costs and investing in innovation across both personal and printing systems. Such initiatives have brought investors' confidence back into the businesses (PC and printing) retained by HP, which was once declining and backed by debt. Year-to-date, personal computer vendor HP has delivered close to 22.6% returns to its shareholders, outperforming the likes of Lenovo Group and IBM (NYSE: IBM) and even the S&P 500 (as shown in the below chart).

Now, let's dig a little deeper to see how HP is gearing up to improve its top line and why investors should care for it.

HP has been working on product innovation, differentiation and enhanced capabilities across both personal and printing systems to drive top line growth. In the last two quarters, sales grew by 4.0% and 2.0% Y/Y, respectively, on the back of rising demand for high-end laptops and convertibles and solid performance of newly launched mobile photo and industrial 3D printers.

Looking ahead, the company's PC sales expect to keep improving on more user upgrades. At the Coachella Valley Music and Arts Festival 2017, HP has unveiled the new Pavilion x360 convertibles and laptops for students, who would be willing to pay more for rich features and performance options previously reserved for higher-end products. In addition, businesses are expected to upgrade to the latest laptops and desktops later this year, and HP's focus on higher-end PCs and premium designs could help bring its PC business back on track.

Furthermore, HP has begun shipping its all-new A3 multifunction printers (MFPs) to more than 80 countries in order to meet the increasing demand of customers, potentially disrupting and acquiring bigger share in the traditional $55bn A3 copier market. It is expected that the successful deployment of the new A3 MFPs printers will boost revenue growth in the time to come. In addition to this, HP's planned acquisition of Samsung's (OTC:SSNLF) printing business (which generated $1.4bn in revenue last year) could boost the unit's sales and margins after the deal closes in the second half of 2017. This acquisition is also expected to bring 6,500+ printing technology patents and cut production costs through economies of scale.

To sum up, HP's restructuring actions will enhance its focus on core businesses and enable it to expand its share in the PC and printing market. In addition, Citigroup sees better than expected PC data points this year as personal computer parts suppliers Micron (NASDAQ:MU), Seagate (NASDAQ:STX), and Western Digital (NYSE:WD) see higher demand for solid state and hard disk drives. That's some good news for HP.

The Bottom Line

Hewlett-Packard, which is currently trading at a P/E of 11.9 and P/S of 0.6 (quite cheaper compared to the overall industry), looks attractive for investors with buy-and-hold investment portfolios. Last year, the company paid $0.50 in annual dividends to shareholders, representing a dividend yield of 3.40%.

Many Wall Street investment banks including Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS), BMO Capital (NYSE:BMO) and Barclays (NYSE:BCS) remain bullish on the stock (with price target as high as $22) and so do I, as HP continues to thrive in a recovering PC market. Moving forward, investors can also expect greater confidence in top line stabilization as well as earnings.

Disclosure: I/we 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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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