HP faces ‘pockets of demand challenges,’ analyst warns in downgrade


HP Inc. could see a a lot more hard extend in advance as the maker of individual computers faces difficulties on equally the supply and desire fronts, according to a Wall Street analyst.

Citi Research analyst Jim Suva downgraded HP’s stock
to neutral from get Monday, warning of “pockets of need difficulties in buyer/Chromebooks.”

Suva pointed out that HP shares have held up far better than the broader tech universe so far this yr, dropping 10% about the study course of 2022, as of the publication of his notice, as opposed with a 30% tumble for the Nasdaq Composite Index
in the very same span.

“We continue to see HP as a powerful operational executor and cash flow generator,” he wrote. “That staying stated, hard Computer shipment expansion and better freight charges are probable to restrict working income growth and EPS upside below in FY22 as [the] Private Systems segment was a essential driver of working earnings growth in FY22E.”

Suva pointed to “pressures in China to exchange foreign purchases of PCs with domestic possibilities,” which he reported could provide as an “overhang” on the stock, given that China accounts for about 8% of HP’s unit gross sales.

He even more observed that HP’s print segment could see continued impacts from provide shortages, and he warned that the firm may well slow its tempo of buybacks future calendar year the moment the acquisition of Poly closes.

“While valuation degrees are not stretched at recent ranges, we feel upside continues to be limited offered moderation in Laptop demand from customers and continued source problems in Print,” Suva wrote. “We do not consider a provide rating is warranted given HPQ’s ~3% dividend generate, and robust FCF [free-cash-flow] generate.”

Suva also lowered his earnings and earnings estimates for Dell Systems Inc.
but he saved a buy rating on the stock, noting that the company’s commercial enterprise and low Chromebook exposure could support offset stress elsewhere.

“Additionally we think core organization infrastructure orders for compute/storage (based on Cisco’s, Arista, ODM comments) stay strong and Dell’s posture is stronger relative to their OEM [original equipment manufacturer] peers,” he wrote.

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