HP Continues to Diversify, yet Challenges Remain
We are encouraged by HP's execution and road map, but a highly competitive marketplace will cap long-term excess economic returns.
HP's (HPQ) analyst day showcased its progress in morphing into a more diversified firm by sharing product and service highlights. We are encouraged by HP's execution and road map, but we continue to expect a highly competitive marketplace to cap long-term excess economic returns. After incorporating insight from HP's presentations and its fiscal 2019 guidance, including a 15% dividend bump over fiscal 2018 and higher-than-expected EPS guidance for fiscal 2019, we are increasing our fair value estimate for no-moat HP to $25 from $23.
The company reaffirmed its commitment to grow its personal systems segment through premium and gaming products as traditional computer spending is expected to slow. Also, HP is investing in device-as-a-service, security, and virtual reality programs as growth engines. Our long-term thesis on HP's personal systems remains intact. We believe that Dell, Lenovo, and other smaller brands will inhibit potential long-term growth through intense pricing competition for computers and DaaS contracts, while consumers will continue to favor smartphone purchases over computer upgrades.
HP's printing segment showcased growth in its strategic focus areas of subscription-based ink, managed print services, industrial graphics presses, and 3D printing. The challenge HP faces is continuing growth in these largely nascent revenue streams. HP's graphic presses and managed services can ensure its supplies business has a recurring revenue stream, but existing players will make inroads difficult for HP. We do like HP's focus on manufacturing for 3D printing instead of small-scale 3D printing; however, this product line does not benefit from a recurring revenue stream of selling 3D printing supplies. While we believe that HP is making wise moves to make its brand stickier with customers, we reiterate our long-term thesis of upside being limited by an intensely competitive environment coupled with the macro trend of individuals printing fewer items.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, 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.|
Mark Cash does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.