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Stock Analyst Update

A Fair-Value Boost for HP

We are raising our fair value estimate due to the outperformance across HP's operating segments as well as the success of the company's turnaround efforts in the printing segment.


 HP (HPQ) reported solid fiscal second-quarter results that surpassed our revenue estimates while non-GAAP EPS was roughly in line with our expectations. The stellar top-line performance was driven by growth across all regions in the Personal Systems and THE Printing operating segments. In Personal Systems, HP reported strong revenue growth in notebooks while outperforming the broad PC market. In Printing, we were encouraged to see supplies-related revenue stabilizing, and management expected supplies revenue growth in the second half of fiscal 2017 to be flat or slightly up year over year. Further, HP continues to execute well on its rollout strategy for 3D printing while also increasing contract values related to Managed Print Services, reaffirming our investment thesis. Management also modestly raised their outlook on the full-year non-GAAP EPS, driven by strong performance expected in both Personal Systems and Printing. We are raising our fair value estimate to $20 per share from $16 due to the outperformance across HP’s operating segments as well as the success of the company’s turnaround efforts in the Printing segment. At this time, we think shares are fairly valued and would encourage investors to wait for a wider margin of safety before investing in this no-moat company.

Revenue in the second fiscal quarter came in at $12.4 billion, up 7% year over year. Personal Systems contributed most to the company’s top-line growth in the quarter, reporting revenue growth of 10% year over year. Specifically, notebooks displayed 17% year-over-year revenue growth while workstations came in at 7% year over year. The strong performance in Personal Systems resulted in HP regaining the number one position in PC market share. Printing revenue grew 2% year over year with both hardware and supplies growing together for the first time since fiscal 2011. Commercial hardware and consumer hardware reported 3% and 4% top-line growth, respectively, while supplies grew 2% year over year.

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Timothy Feeney does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.