HP Inc.: A Value Play for Dividend Seekers in a Stagnant Tech Landscape

HP Inc. (NYSE: HPQ) is a paradox of modern tech investing: a company with structural headwinds yet undeniable value at current prices. Despite operating in a stagnant PC market, facing supply chain complexities, and navigating liability risks, HP’s stock trades at a 30% discount to its intrinsic value according to recent discounted cash flow (DCF) analysis. This creates a compelling opportunity for income-focused investors willing to accept tempered expectations.

The Undervaluation Case: A 30% Discount Supported by DCF

The DCF analysis of HPQ as of May 2025 highlights a stark contrast between its stock price and intrinsic value. With a DCF-derived fair value of $42.10, HP’s current market price of $29.32 reflects a 30% undervaluation. This gap is driven by conservative assumptions:

• Low Revenue Growth: The model assumes just 1% annual revenue growth, aligned with Wall Street forecasts, acknowledging HP’s reliance on a mature PC market.
• Terminal Value: A 4% terminal growth rate (below the discount rate of ~8.5%) ensures no unrealistic long-term assumptions.
• Margin Stability: Operating margins are held at an 8% historical average, even as costs rise.

Structural Challenges: Why HP Isn’t a Growth Story

While the DCF suggests value, HP’s environment is far from ideal:

1. PC Market Maturity: Global PC shipments have declined for years, with HP’s Personal Systems division growing only 5% YoY in Q1 2025, driven by commercial demand rather than consumer excitement.
2. Supplier Reliance: HP’s margin pressures stem partly from component shortages and rising costs. Its Future Ready Plan to diversify supply chains (e.g., moving 90% of North American production outside China) is a step forward but won’t reverse secular declines.
3. Liability Risks: While not explicitly detailed, legacy issues like tax disputes or environmental liabilities could weigh on the balance sheet. HP’s $8.3B debt load and net debt of ~$5.4B underscore caution here.

The Case for Income: Dividends and Buybacks as Safety Nets

HP’s $0.2894 quarterly dividend (yielding ~4% at current prices) and $100M in buybacks in Q1 2025 make it a standout income play. With FCF guidance of $3.2–3.6B for FY2025, HP can sustain this payout even amid margin pressures. The dividend payout ratio remains moderate, at ~40% of non-GAAP earnings, leaving room for growth or buybacks.

Upside Catalysts? Look to Multiple Expansion, Not Growth

HP’s valuation multiples are depressed: its P/E of 9x trails the sector average of ~15x. A re-rating could occur if investors grow comfortable with HP’s stability. Key triggers include:
- Margin Stability: Cost savings from the Future Ready Plan ($1.9B annualized by 2025) could offset inflationary pressures.
- Dividend Growth: A modest hike to the payout ratio could attract income investors further.

Why Hold, Not Buy?

HP lacks catalysts for meaningful growth. The AI-powered PC push and commercial sales are incremental wins, not game-changers. Meanwhile, the Printing division’s -2% YoY revenue decline underscores secular challenges in that segment.

Conclusion: A Hold-for-Yield Play with Margin of Safety

HP isn’t a stock for growth chasers. Its 30% undervaluation, robust dividend, and manageable debt make it a defensive holding for income investors. While stagnant growth and industry headwinds cap upside, the margin of safety is substantial.

Actionable Takeaway:
- Buy: For long-term income seekers at current prices.
- Avoid: For growth-focused investors seeking 10%+ annual EPS growth.

HPQ’s blend of value and stability positions it as a core holding in conservative portfolios—so long as investors temper their expectations.