Shares of the PC maker HP (NYSE:HPQ) have underperformed the S&P 500 Index (SPX) over the past three months. The weak macroeconomic environment (including record high inflation), exacerbated further by Russia’s invasion of Ukraine, lowered demand and consumer spending on PCs and related products and, in turn, dragged its stock price lower.
HP stock has lost over 25% of its value in three months. In comparison, the S&P 500 Index has declined by about 5%.
HP’s Weakness to Sustain
Management’s full-year guidance cut is indicative of continued weakness in the business. For context, HP recently delivered its Q3 financials. Its net revenues of $14.7 billion decreased 4.1% and fell short of analysts’ estimate of $15.74 billion. However, its adjusted EPS of $1.04 came in line with Wall Street’s expectations, thanks to its prudent cost management and pricing strategy.
Highlighting the challenges, HP CEO Enrique Lores stated, “Inflation increased in many parts of the world, and this led to lower consumer spending for our product categories.” Meanwhile, demand in Europe slumped amid the Russia/Ukraine crisis.
HP’s management warned investors about softness in consumer spending during the Q2 conference call. However, Lores noted that the spending “environment deteriorated more rapidly late in the third quarter.”
Given the challenging macro and demand environment, like inflation, supply constraints, and pricing dynamics, HP lowered its full-year outlook.
HP expects to deliver adjusted EPS in the range of $4.02 – $4.12, compared to its previous guidance of $4.24 – $4.38.
Further, HP anticipates generating free cash flow between $3.2 billion to $3.7 billion, significantly lower than its earlier forecast of at least $4.5B.
Will HP Stock Go Up?
Wall Street’s forecast shows limited upside for HP stock. Analysts’ average price target of $31.09 implies 8.3% upside potential. Meanwhile, analysts are bearish about HP’s prospects due to the weak demand environment and uncertainty.
HP stock has received one Buy, Six, Hold, and four Sell recommendations for a Moderate Sell rating consensus. Further, it has negative signals from hedge funds, insiders, and TipRanks’ investors. Hedge funds sold 19.2M HP shares last quarter. Meanwhile, insiders sold HP stock worth $242.2K. Further, 1.1% of TipRanks’ investors reduced their holdings in HP stock.
Overall, HP stock sports an Underperform Smart Score of 1 out of 10 on TipRanks.
Bottom Line: Ongoing Challenges Could Restrict Upside
Weak end market demand in the wake of macro uncertainty could continue to play spoilsport for HP stock, at least in the short term. However, management’s efforts to accelerate growth in the core business and reduce structural costs provide a solid base for long-term growth.
