Skip to Content
Morningstar

HP: Turnaround Progressing But Shares Still Overvalued

Many of HP's stumbles during the quarter appear to be isolated, but we would seek a wider margin of safety before buying, writes Morningstar's Pete Wahlstrom.

Fiscal first-quarter revenue slipped 4.7% year over year to $26.8 billion (down 2% in constant currency), but the results were choppy. In aggregate, printing and personal systems division revenue dipped 2%, and the market share game is not one that we view as particularly lucrative. Meanwhile, printing business revenue fell 5% as management has started to see Japanese competitors become more aggressive and taking advantage of the strong dollar. The enterprise services group (down 11%) saw the combination of key account runoffs (similar to recent trends), weakness in Europe, the Middle East, and Africa, and currency moves. Non-GAAP operating profit ticked up 30 basis points (to 8.8%) driven by cost controls, and again six of the seven segments reported margin expansion--an encouraging sign that management is still able to pull a few cost levers amid a flat to declining sales environment.

Morningstar Premium Members gain exclusive access to our full HP Analyst Report, including fair value estimates, consider buying/selling prices, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

More in Stocks

About the Author

Peter Wahlstrom

Sector Director

Peter Wahlstrom, CFA, is director of technology, media, and telecom equity research and a senior software analyst for Morningstar. In addition to leading Morningstar’s technology, media, and telecom sector team, he is also a member of the firm’s Economic Moat committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. He joined Morningstar in 2010 as an equity analyst and served as director of equity research for the consumer team before assuming his current role.

Before joining Morningstar, Wahlstrom worked in the investment research divisions of Goldman Sachs and RiverSource Investments (Ameriprise Financial).

Wahlstrom holds a bachelor’s degree in economics from the University of Illinois and a master’s degree in business administration from Indiana University’s Kelley School of Business. He also holds the Chartered Financial Analyst® designation. In 2012, Wahlstrom ranked third in the Specialty Retail industry in the StarMine Analyst Awards, presented by the Financial Times.

Sponsor Center