HP Inc.
stock is now a Buy said a BofA Securities analyst who sees an improving PC market and a possible bottom in the company’s free cash flow.
BofA Securities analyst Wamsi Mohan double upgraded shares of
HP
(ticker: HPQ) to Buy from Underperform and raised his price target to $33 from $25, implying a 29% upside to the stock’s closing price on Monday. Shares of
HP
were rising 1.9% Tuesday to $26.15.
One reason for the double upgrade was Mohan’s belief that the personal computer market should recover, driving growth at the maker of personal computers and printers.
PC demand hit a wall after surging during the pandemic as people across the globe stocked up on laptops and desktops to work and take classes from home. However, a report from market research firm IDC in late August said that despite high inflation pressuring the consumer, PC shipments are estimated to grow 3.7% year over year in 2024.
On a call with investors after third-quarter earnings in August, HP Chief Executive Enrique Lores said that company’s PC business “grew from Q3 to Q2. We expect it to grow also from Q4 to Q3. So, the recovery of the business is happening.”
“Our Buy rating is based on improving PC outlook and lower restructuring costs that drive higher free cash flow,” Mohan wrote in a research note.
Mohan believes that HP’s free cash flow will bottom in fiscal 2023, another reason why he says to buy the stock. Analysts surveyed by FactSet expect the company to report fiscal 2023 free cash flow of $3.1 billion, a decline from the prior year’s $3.9 billion. Analysts anticipate 2024 free cash flow of $3.3 billion.
The analyst’s newly bullish view on the stock comes during a difficult time for the company. HP cut its fiscal 2023 adjusted earnings guidance in August to between $3.23 a share to $3.35 a share, from a previous range of $3.30 a share to $3.50 a share. The stock has declined 2.6% this year.
“This outlook is largely driven by the continued aggressive pricing environment in PCs, sluggish demand in China, and enterprise demand softening,” Lores said on the most recent earnings call.
The upgrade also comes during a time in which
Berkshire Hathaway
continues to reduce its stake in HP. Warren Buffett’s company sold HP stock valued at around $132 million at an average price of around $25.75 a share on Thursday, Friday, and Monday.
Write to Angela Palumbo at [email protected]
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