HP Inc. (NYSE: NYSE:) Stock Falls as BofA Downgrades Rating to Neutral - What Investors Need to Know
In a market pre-open move, HP Inc. (NYSE: NYSE:) saw its shares decline after Bank of America analysts downgraded the stock from Buy to Neutral. The analysts believe that HP's earnings per share (EPS) growth will be driven mainly by share buybacks in the future.
The price target was maintained at $37, based on a 10x multiple of the projected calendar year 2025 EPS of $3.55. BofA's analysis suggests that while there may be potential gains from the PC sector, including advancements in AI-powered PCs, these could be offset by decreasing print margins.
HP has been performing well in its printing segment, but BofA anticipates a reversion of print margins to the middle of their long-term range. The firm forecasts a decline in print revenue over fiscal years 2024 through 2026, with an 18% print operating margin that is above the 14-year average.
Analysts caution that any further decline in print margins could put pressure on earnings. They believe that the recent higher margin environment in Printing, driven by cost takeouts and COVID-related supply chain issues, may not be sustainable.
BofA also predicts that HP's free cash flow (FCF) will plateau around $3.5 billion in the near term, with an end-of-FY24 projection of $3.2 billion. While PC growth could have a positive impact, it may not be enough to significantly boost overall FCF growth due to challenges in the printing sector.
The bank highlighted various risks that could affect its analysis, including a stronger PC refresh cycle, higher-than-expected FCF from operational profit growth, currency fluctuations benefiting competitors, and strategic changes under the new CFO Karen Parkhill.
In conclusion, investors should pay attention to HP's performance in the coming years, particularly in the printing sector. The analysis by BofA provides valuable insights into the factors influencing HP's stock price and financial outlook. It is essential for investors to stay informed about such developments to make informed decisions about their investments.
