Morningstar | HP Closes Out a Year of Double-Digit Growth; Maintaining FVE of $25. See Updated Analyst Note from 29 Nov 2018
No-moat HP closed out fiscal 2018 by topping consensus expectations with 10% revenue growth in the quarter and 12% for the year, compared with fiscal 2017 values. The company continued its strength in the personal systems market while the printing businesses gained from integrating acquisitions. For the year, HP's operating margin slightly increased to 7% while EPS finished at $3.26 per share. Although HP expects headwinds from CPU shortages to impact the first half of fiscal 2019, we are maintaining our fair value estimate of $25 per share. With the security trading around a 3-star rating, we recommend investors sustain their current positions in this name.The personal systems business grew 11% from last year to $10 billion. Compared with the prior year, notebooks grew 14%, desktops went up 6%, and workstations expanded by 10%. Operating profit for personal systems grew to $378 million (3.8% of revenue) as HP expanded its unit sales while benefiting from higher average selling prices. HP expects to be hampered by Intel's CPU shortage in the first half of next year, and we expect a flat year-over-year revenue profile as the company backloads revenue for computer systems. The printing business revenue increased by 9% to $5.3 billion and operating margin was $851 million (16.1% of revenue). HP's printing results include the acquired Samsung S-Print printers and Apogee managed print services.
HP's expects to improve the cost position of the personal systems business in 2019 and believes that supplies revenue should be flat or slightly grow. We model slight growth for fiscal 2019 as we believe HP should benefit from its managed print services, 3D and large graphics printers, and continued demand for premium and gaming computers. Although our long-term thesis remains intact, that mobile phones and screen reading are impacting computer and printer sales, we believe HP is offsetting consumer trends by becoming further engrained into enterprise ecosystems.
HP is a provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services. The company's segments are: Personal Systems, which provides commercial and consumer desktop and notebook personal computers, workstations, thin clients, commercial mobility devices, retail point-of-sale systems, displays and other related accessories, software, support and services; Printing, which provides consumer and commercial printer hardware, supplies, solutions and services, as well as scanning devices; and Corporate Investments, which includes HP Labs and certain business incubation and investment projects.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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