HP: We Continue to Like Strong Shareholder Returns After Unsurprising Analyst Day

We maintain our $30 fair value estimate for shares of no-moat HP HPQ after its 2023 analyst day reiterated existing strategy and its long-term financial model largely fit our expectations. HP’s presentations centered around a focus on profitability across flat PC and printing end markets. The firm also highlighted its growing mix of growth-adjacent markets like peripherals. We continue to like HP’s focus on profitability, cash flow, and shareholder returns, and we think investors do too, with shares up 2% afterhours following the analyst day. We see shares as modestly undervalued, with very attractive shareholder returns.

HP provided strategy updates to each of its main segments with a focus on profitability and recurring revenue-like services. In personal systems, which is largely PCs and peripherals, the firm is moving toward a more streamlined supply chain and using common components across product lines. In our view, the most important piece to HP’s PC profitability is its focus on the premium segments of the market, like professional and gaming. In printing, HP is continuing its push into subscription models for printers and ink, and especially selling bulk cartridges up front to generate higher immediate profits from the consumer market. Finally, following the recent Poly acquisition which gave the firm a lot more exposure to peripherals and videoconferencing, HP is attempting to leverage more services and software offerings with a growing endpoint installed base of PCs and peripherals.

HP provided fiscal 2024 guidance and a financial outlook for fiscal 2026, both of which came close to our model. In fiscal 2024, HP’s earnings guide implies a modest recovery from the cyclically afflicted fiscal 2023. Through fiscal 2026, HP is targeting growth in line with its end markets, but for earnings and free cash flow to grow faster than the top line.