HPQ Stock Forecast: Healthy Printing Business Makes HP Inc. A Buy

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.

Summary:

  • HPQ’s price dropped -11.99% during after-hours trading on February 27. This was a big thumb down post-Q1 2019 earnings report.
  • If the market opens at $20.99 today, I will consider it as a great opportunity to buy more shares of this PC and printing market leader.
  • HP Inc’s Q1 2019 was not that bad to justify a prolonged bearish emotion. The weak holiday quarter performance is likely due to stiff competition on PCs and printers.
  • What’s more important is that HP Inc. is making a profit and is growing its commercial printers and laptop business segments.
  • HP Inc. has a solid tailwind from the growing $24 billion/year outdoor advertising industry.

The big dip (-11.99%) in HP Incorporated’s (HPQ) stock price during after-hours trading after it made its Q1 2019 earnings report is disappointing. If HPQ really opens at $20.99 today, I will have to pounce and average down on my HP Inc. position. My fearless forecast is that a prolonged bearish emotion over HPQ is not justified.

HP had a decent (not great) holiday quarter. Its Personal Systems and Printing segments posted Y/Y growth in earnings before taxes.

The Q1 2019 numbers are not that bad. Sure, there is a -3% Y/Y in desktop PCs ($2.857 billion), but laptop sales ($5.919 billion) posted +6% Y/Y growth and workstation PC sales ($562 million) is +3% Y/Y. The Printing Segment’s quarterly revenue ($5.056 billion) is down -1% Y/Y. However, commercial printing hardware ($1.09 billion) was up 5% Y/Y and consumer printing hardware +2 Y/Y, $699 million.

Beauty is in the eye of the beholder. I believe HPQ is very beautiful because its profits before taxes in printing is growing. It is attractive to me that the high-margin commercial printing hardware business is growing. This can only mean HP Inc. will continue to rule as the king of large format printers (commercial & production).

(Source: IDC)

Why Large Format Printing Is Important To HP, Inc.

The rising use of ad-blocking browser extensions on PCs and mobile devices convinced me that large format printers have a tailwind in the growing outdoor billboard/poster advertising industry. The global outdoor or out-of-home [OOH] advertising industry had a market size of $24.5 billion, $10 billion of that is from the United States. Technavio projected that OOH advertising will have a market size of $45.46 billion by 2021. PC sales might stagnate again for the next four years but HPQ has a tailwind in the growing OOH advertising business.

Product advertisers discouraged by the growing ad-blocking usage in computers/mobile devices will likely return to OOH advertising. Nobody can block a 30 ft x 60 ft billboard advertisement. Every passerby will have many seconds to be inundated by a giant billboard ad. HP’s Latex R wide format printers are ideal for outdoor advertising.

(Source: HP, Inc.)

The Latex R large format printers can print on flexible and rigid materials. They are ideal for all types of outdoor advertising.

Its Healthy Printing Business Is Why I Love HP Inc.

The PC business is not a reliable growth driver for HPQ. I prioritize the Printing segment when it comes to evaluating HPQ’s long-term investment quality. Going forward, HP’s dominant 34.8% market share in commercial printers gives it a steady growth driver. The large format printer market is growing at 4% CAGR. It will be worth $10.59 billion/year by 2023, $12.4 billion by 2026.

I went long on Canon (CAJ) because I like its growing printing business. I will stay long HPQ because I also like its printing business. HP Inc and Canon are fierce rivals in copiers & printers. Like it is large format printers, HP and Canon are no.1 and no.2 respectively in the global hard-copy peripherals business. This is the market segment covering inkjet & LaserJet printers & peripherals for home and office use.

The reason why HP Inc can sell $3.2 billion worth of printer ink and parts every quarter is that it can ship out 10.18 million printers/copiers every quarter. In spite of the proliferation of third-party inks, HPQ has a very healthy printer ink business. This is important because the global printing ink market is expected to be worth $20.84 billion by 2023. The fact that HP Inc can generate more than $11 billion from its annual printing supplies business convinced it has loyal customers.

Conclusion

The printing business contributes the majority of HP, Inc’s profit. It is the most important gauge when you evaluate HPQ’s investment quality. I opine HPQ is a golden investment because it dominates the growing printing industry.

As long as its printing business is growing, HPQ remains a great long-term investment. Smartphones and tablets reduced the usefulness of laptops and desktop PCs. However, there’s no mobile device invented yet that can replace the purpose of inkjet/LaserJet/large format printers.

Lastly, HPQ has very low TTM P/E of 7.34x, 0.63x Price/Sales, and 0.68 EV/Sales ratio. This unloved stock is being punished for its PC vendor reputation. My takeaway is that we should appreciate the healthy printing business of HPQ more and give it a higher valuation.

(Source: Seeking Alpha)

I Know First has a bullish one-year market trend forecast score for HPQ. I Know First’s predictability score for HPQ is also very high at 0.81. It means it has a great history of correctly predicting the previous 12-month market performance of HPQ. We should heed its AI’s stock-picking wisdom. Let’s all add more to our HP, Inc. position.

How to interpret this diagram.

Past I Know First Success with HPQ

I Know First has been bullish on HPQ shares in past forecasts. On October 12, 2017, the I Know First algorithm issued a bullish 1 year forecast for HPQ with a signal of 31.8 and a predictability of 0.80, the algorithm successfully forecasted the movement of the HPQ share.  After a year, HPQ shares rose by 15.97% in line with the I Know First algorithm’s forecast. See chart below.

This bullish forecast for HPQ was sent to the current I Know First subscribers on October 12, 2017.

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Please note-for trading decisions use the most recent forecast.