HP Inc. Falls Short of Expectations: No Catalysts to Boost Growth

HP Inc. (HPQ) missed its mark, with Morgan Stanley lowering its price target to $26 and maintaining an "Equal Weight" rating. The firm's growth areas are small and lack transparency, and cost-cutting measures only partially mitigate issues. Analysts forecast EPS for fiscal year 2026 to be roughly on par with fiscal year 2024, and capital returns may be restricted due to increased leverage. A lack of a positive catalyst keeps the firm on the sidelines.

HP Inc. (HPQ) has been facing significant challenges in recent quarters, as highlighted by a series of analyst downgrades and earnings misses. On May 29, Morgan Stanley lowered its price target on HPQ to $26, maintaining an "Equal Weight" rating [2]. The firm's growth areas are small and lack transparency, and cost-cutting measures have only partially mitigated issues. Analysts forecast that earnings per share (EPS) for fiscal year 2026 will be roughly on par with fiscal year 2024 [1]. Additionally, capital returns may be restricted due to increased leverage, and a lack of a positive catalyst keeps the firm on the sidelines.

HPQ's latest earnings report for Q1 CY2025 showed revenue rising 3.3% year on year to $13.22 billion, but its non-GAAP EPS of $0.71 per share was 11.6% below analysts' consensus estimates [3]. Management attributed the top-line growth to commercial PC momentum and high-value mix shifts but emphasized that unmitigated tariffs and manufacturing adjustments weighed on margins. The introduction of new tariffs increased costs by an estimated 100 basis points on non-GAAP operating profit, mainly affecting the Personal Systems segment.

Looking forward, HP anticipates that AI-enabled PCs (AIPCs) will comprise over 25% of PC shipments by year-end, boosting average selling prices and gross margins. The company expects to fully offset current tariff-related costs by the end of the year through accelerated supply chain reconfiguration, targeted pricing actions, and additional cost-cutting. However, the pace of PC market recovery remains uncertain, and macroeconomic conditions continue to pose challenges.

In conclusion, while HPQ faces significant headwinds, its focus on AI PCs and cost-cutting measures may provide a path to future growth. Investors should closely monitor the company's ability to execute on these strategies and navigate the uncertain macroeconomic environment.

References:
[1] https://finance.yahoo.com/quote/HPQ/analysis/
[2] https://ca.finance.yahoo.com/news/hp-inc-hpq-misses-mark-053139146.html
[3] https://finance.yahoo.com/news/hpq-q1-earnings-call-tariff-015045202.html