HP Inc. Stock Suffers Another Blow After a Goldman Downgrade -- Barrons.com
DOW JONES & COMPANY, INC. 7:29 AM ET 10/11/2019
Symbol Last Price Change | HPQ | 16.03 | 0 (0%) | | QUOTES AS OF 06:30:00 PM ET 10/10/2019 |
October is only a third of the way done, but HP Inc.(HPQ) stock is down 15% for the month, making it the second-worst performer in the S&P 500. The latest blow: a Thursday downgrade from Goldman Sachs, which warned that HP's PC business will get more challenging.
The back story. HP has had a difficult year, with the shares off nearly 22% in 2019, even as the S&P 500 gained 16.5%. Earlier this month HP dropped double digits when it announced its strategy to fix struggling printer supply business amid a wider restructuring effort that will include big layoffs.
It's one of the worst-performing tech stocks both this month and this year, plagued by negative sentiment as investors worry about competition and slowing enterprise spending.
What's new. On Thursday, HP closed at its lowest level since February 2017 after Goldman Sachs analyst Rod Hall downgraded it to Sell from Neutral and cut $4 off his price target, to $14.
He notes that both the company's PC business and printer business are sensitive to slowing macro conditions, which could make HP's turnaround even more difficult to execute. That's a blow, especially as his research shows that enterprise spending was already decelerating in recent months.
Looking ahead. Bigger problems are still to come, according to Hall, who expects a "substantially tougher environment for HP in 2020 as near-term tailwinds reverse in the PC business while the company attempts a difficult transition in the printing business." Consumer PC sales have been weak for some time already, but that's largely been offset by strength in the commercial PC market. Yet with the migration to Windows 10 likely having peaked by next year, that weakness will become more apparent.
Worse still, he writes that "any weakness in the PC business is likely to have an outsize impact on cash flow given that business' negative cash conversion cycle." That leaves his fiscal 2020 earnings-per-share estimates below consensus and fuels his bearish outlook for the stock.
The problem for HP is that even in a best-case scenario, it needs more time, which the stock may not have. Even successful turnarounds often take longer than investors hope, but with the shares down so meaningfully in 2019, investors may understandably be losing patience. The company has already made big moves, including replacing the CEO and committing to a big buyback program, but for now, markets appear to remain skeptical, and prefer a wait-and-see approach.
HP shares closed Thursday down 2.5%, to $16. The S&P 500 closed up 0.6%.
Write to Teresa Rivas at teresa.rivas@barrons.com |
