Hewlett-Packard Stock Prediction: Healthy Growth In Printing And PC Sales Fortified The Bull Case For HP, Inc.

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Hewlett-Packard Stock Prediction

Summary:

  • The Q3 FY 2017 beat revealed a 12% Y/Y growth in PC sales for HP, Inc.
  • Printing supplies also grew 10% Y/Y and printer hardware sales grew 1% Y/Y.
  • These healthy sales improvements reinforced the long-term bull case for HPQ.
  • New processors from Intel and AMD should prolong the uptrend for PC sales. HP’s Omen brand of computers helps it gained a foothold in the growing PC gaming hardware industry.
  • HPQ enjoys positive algorithmic market trend forecasts from I Know First.

I bought more shares because Hewlett-Packard, Inc. (HPQ) was relatively undervalued last June. The main thesis was HPQ had a high probability to shoot up once investors realized that printing and PC sales are growing since Q1 2017. HP’s Q3 FY 2017 earnings and revenue beat confirmed my bull thesis. The 12% Year-over-Year (Y/Y) growth in Personal Systems (PC Sales) in Q3 is a strong tailwind indicator for HP, the world’s no.1 PC vendor.

Hewlett-Packard Stock Prediction

(Source: HP)

 I am confident that new Ryzen processors from Advanced Micro Devices (AMD) and 7th/8th-gen PC processors from Intel (INTC) will continue to help improve the PC sales of HP, Inc. I also suspect that HP’s margins on PCs can improve later on after AMD and Intel goes in to a pricing war over their latest processors. An extra $20 or $30 per processor saving could improve the bottomline on the Personal Systems division of HP.

HP took in $8.4 billion from PC sales but its operating profit was only $313 million. Investors could push HPQ above $22 if its Personal Systems starts posting better operating margins. Nevertheless, the 12% Y/Y growth in PC sales in Q3 should help HP maintain its dividend and share buyback program.

Hewlett-Packard Stock Prediction

(Source: HP)

Why The Next Quarters Will See Continued PC Sales Improvement

The impressive growth in PC sales is highlighted by HP’s 33% Y/Y growth in laptop sales in July in spite of a general 31% decline in notebook shipments last month. Growth in laptop sales is very important. Laptop sales account for 60% of Personal Systems’ revenue. HP is rated only the no.4 laptop brand for this year but its huge sales boost in notebook computers says it has a large base of loyal users.

Hewlett-Packard Stock Prediction

(Source: Laptop Mag)

New processors from AMD and Intel means FY 2017 and Q1 FY 2018 will propel growth in PC sales for HP and other computer vendors. The Christmas quarter is coming up. People and businesses are looking forward to replacing their 5-year old notebook and desktop PCs. Ryzen and Coffee Lake processors are significantly better than x86 processors produced in 2012.

HP’s Growing Clout  In PC Gaming

High-end but more affordable flagship processors from AMD could also help lower the price of HP’s Omen gaming computers. It is my firm belief that HP could get better margins by focusing on the $30 billion market for PC gaming hardware products. Competing with Dell’s Alienware gaming rigs require HP to use pricing on Omen laptops and desktop PCs.

HP’s latest Omen PC is powered by AMD’s Ryzen 7 1700 processor. It retails for less than $1,500 and it should help steal more customers away from Alienware products. There’s also a $900 HP Omen gaming PC using AMD’s Ryzen 5 CPU. The point is HP’s PC gaming push is getting help from AMD’s more affordable but powerful processors. Being new to the scene, HP needs to offer lower pricing than Alienware to build up its Omen brand in the PC gaming industry.

Hewlett-Packard Stock Prediction

(Source: Amazon)

Printing Business Is Also Growing

The paperless office concept is still just an illusion. HP’s Q3 numbers showed its main profit-maker, printers and ink supplies is still posting positive Y/Y growth. While the PC business operates on a very low margin, ink supplies helped HP gain an operating profit of $813 million on printing’s Q3 revenue of $4.7 billion.

Hewlett-Packard Stock Prediction

(Source: HP)

HPQ’s investment quality remains robust as long as its printing business keeps generating growing revenue and operating profits. HP, Inc. is also a leader in consumer and commercial printing industries. My view is that HP’s profitability will continue to rely more on the printing industry’s trend.

Conclusion

I reiterate my buy rating for HPQ. It’s still relatively undervalued compared to its tech sector peers. Improving PC and printing sales is going to help HP, Inc. maintain its long record of accomplishment of being a generous dividend giver and share buyback practitioner. HP doesn’t have the hype of Tesla (TSLA) but it is a profitable, dependable company with loyal customers.

Hewlett-Packard Stock Prediction

(Source: Vuru)

HP’s solid fundamentals and low valuation makes it a compelling long-term investment. I Know First is also very optimistic about HPQ’s future performance.

Technical indicators and moving averages also favor going long on HPQ now while it still trades below $21.

Hewlett-Packard Stock Prediction

(Source: Investing.com)

Past I Know First Forecast Success with HPQ

I Know First’s algorithm has made accurate predictions on HPQ in the past, such as its bullish forecast published on September 23, 2016. In the article, it explains that Hewlett-Packard (HPQ) is a strong Buy for long-term investment and the runaway leader when it comes to home and office printers. The bullish signal identified by the algorithm is strengthened by different facts. Since the forecast’s release, the stock has increased by 27.84%.

Hewlett-Packard Stock Prediction

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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