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Hewlett-Packard (HPQ) Price Target Reduced at FBN Securities After Q4 Results

 November 20, 2012 12:27 PM

(By Balachander) Hewlett-Packard Co. (NYSE: HPQ) shares were reiterated "sector perform" and the price target lowered to $13 from $17 by FBN Securities analyst Shebly Seyrafi, following the company's quarterly results and guidance.

Earlier today, the world's largest seller of personal computers issued a downbeat earnings forecast following weaker-than-expected quarterly revenue.

On a non-GAAP basis, fourth-quarter earnings per share (EPS) fell 1 percent to $1.16 from $1.17 in the same period of last year, yet topped the consensus of $1.14. The company posted a GAAP loss of $6.9 billion due to restructuring and goodwill impairment charge of $8.8 billion.

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Revenue declined 7 percent to $30 billion, versus the consensus estimate of $30.5 billion for the fourth quarter.

Looking ahead for the first quarter, HP forecasts non-GAAP EPS in the range of $0.68 to $0.71, trailing the consensus of $0.85.

For the full year 2013, the company still expects non-GAAP EPS in the range of $3.40 to $3.60 (in line with the $3.52 consensus), while Seyrafi estimates $3.34.

Seyrafi believes that the company has set itself too high a bar for F2013. "Still, HPQ has intriguing valuation (3.7x, 4-5 percent dividend yield on $.53/yr. dividend)," the analyst wrote.

Segment wise, personal systems group revenue declined 14 percent with desktop and notebook units falling 12 percent. Services revenue fell 6 percent.

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"According to our model, the desktop ASP fell by 4 percent Q/Q (and by 2 percent Y/Y), while the notebook ASP declined by 6 percent Q/Q (and by 4 percent Y/Y)," Seyrafi said.

"This large Q/Q decline in prices is consistent with HP's comments about aggressive PC pricing, resulting in lower margins," the analyst noted.

Imaging and printing group (IPG) revenue dropped 5 percent. Seyrafi expects printer operating margin to decline in FQ1 as HP reduces ink supplies channel inventory.

Revenue at enterprise servers, storage and networking (ESSN) - which accounts for 16 percent of HP's topline - fell 9 percent. Software revenue, meanwhile, jumped 14 percent.

Seyrafi said weak areas of storage were storage networking, EVA, and tape. Like in PCs, ESSN margins were also quite weak due to aggressive pricing in ISS and due to a large decline in (higher-margin) BCS.

The stock, which has been trading in the 52-week range of $11.35 to $30.00, retreated 10.53 percent to trade at $11.90 on Tuesday.



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