Morningstar | HPQ Updated Forecasts and Estimates from 28 Feb 2019
No-moat HP's first-quarter revenue of $14.7 billion (1.3% year-over-year growth) was slightly above our $14.6 billion expectation. Operating margin of 6.3% was in line with our projection while diluted EPS of $0.51 was higher than we expected due to a lower tax rate. The printing supplies businesses declined by 2.5% year over year, and management guided that supplies should remain down 3% for 2019. This expected 3% decline in supplies led our decision to lower our fair value estimate to $22 per share from $25.Personal systems revenue increased 2.3% year over year. The growth highlight, in our opinion, was HP's notebook division increasing by 5.8% year over year. Desktops declined by 3.3% while workstations increased by 3.5%. From a units standpoint, notebooks and desktops declined by 1% and 8%, respectively. The increase in notebooks was higher than we expected as HP mitigates CPU shortages in first half of 2019 while executing on selling higher priced premium notebooks.
Printing declined 0.4% versus the previous year. Within the printing business, commercial and consumer hardware sales increased by 5.1% and 1.6%, respectively. Supplies decreased more than we expected in the quarter as more of HP's commercial clients moved toward online purchases for toner, which includes aftermarket alternatives. HP was caught off guard with its position in the marketplace and didn’t foresee the buying behavior shift. HP's future efforts into online sales marketing, brand protection, and market analytics should be helpful, but we expect near term margin compression.
For next quarter, HP targets EPS of $0.45-$0.48 ($0.50-$0.53 for non-GAAP) and reaffirmed its previous 2019 EPS targets. We believe the EPS targets are achievable via cost savings efforts, inventory control, and share buybacks. HP returned $720 million in share repurchases and $249 million in dividends in the quarter, and the company continues to expect to return 75% of free cash flow to shareholders.
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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