Hewlett Packard ( ) is scheduled to report their fiscal third quarter 2009 results after the market closes on Tuesday, August 18. Based on our analysis, we at EarningsPreviews.com are expecting HPQ to report better than expected results that exceed Wall Street’s consensus expectations.
Analyst Expectations
We are forecasting revenues of $27.39 billion and EPS of $.90. This would represent a 2% decline in revenues from last year’s $28.03 billion in the same period. The current analyst consensus estimates calls for revenues of $27.24 billion and EPS of $.88. On May 19, the company provided quarterly guidance of a 0 – 2% sequential decline in revenues and $.88 - $.90 EPS.
While Wall Street analysts are expecting Hewlett-Packard to report results at the low end of the company’s guidance range, we are taking a more bullish view and believe HPQ’s results will come in at the high end. While there’s not likely to be significant increases in IT budgets in the near term, our view is that the aggressive reductions in corporate IT budgets are over.
Hewlett-Packard has weathered the economic tsunami of the past few quarters quite well. In fact, this quarter they are likely to be one of only three Dow stocks to post a y/y increase in earnings (McDonalds and Walmart being the other two). With a diversified revenue stream and a large international presence, we would expect HPQ to continue to be one of the leading Dow components in the near term.
Stock Performance
Since the beginning of 2009, Hewlett-Packard’s shares have gained 22% and have significantly outperformed the 7% gain in the Dow Jones industrial average. Last year HPQ’s stock fell along with everyone else, but managed to outperform the 34% drop in the Dow Jones industrial average.
Valuation
Shares are now trading at less than 11x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. With signs of economic recovery becoming more apparent, we would expect Hewlett-Packard’s stock to hit a new 52-week high in the next few months.
Recommendation: Buy with a $49 price target.
