28 May 2021

HP Gets Shorted Despite Upbeat Q2 Results

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What’s happening: Shares of HP Inc. declined in extended trading on Thursday, despite the computer hardware maker posting stronger-than-expected results for its fiscal second quarter.

What happened: With customers continuing to buy personal computers despite the easing of pandemic-led restrictions in several areas of the world, HP reported strong revenue growth for the fiscal second quarter.

The company’s ability to meet high demand is limited, however, by the global shortage of computer chips, which may hurt its performance this year.

How were the results: The Palo Alto, California-based company recorded the fastest quarterly growth in revenues since the company was created by splitting from HP Enterprise in 2015.

  • Revenues grew 27.3% to $15.9 billion, beating market expectations of $15 billion.
  • Non-GAAP earnings came in at 93 cents per share, exceeding the consensus estimate of 89 cents per share.

Why it matters: HP benefited significantly from the covid-19 pandemic, which resulted in higher demand for laptops and other computer-related products amid remote learn- and work-from-home trends. Revenues generated by the Personal Systems unit surged 27% to $10.6 billion in the quarter.

The company’s printer business, which had been negatively impacted by offices remaining closed, saw some rebound last quarter. Printing net revenues grew 28% to $5.3 billion, with consumer revenues surging a whopping 77%.

Management said, however, that the global chip supply shortage could limit the company’s ability to supply computers and printers at least till yearend.

The company continues to repurchase its stock and bought back $1.6 billion worth of shares during the fiscal second quarter. With this, HP has bought back around 17% of its stock over the past four quarters.

For the fiscal third quarter, management guided to non-GAAP earnings between 81 and 85 cents per share, ahead of market views of 75 cents per share. HP now expects to generate non-GAAP earnings between $3.40 and $3.50 per share in the full fiscal year ending October, up from the earlier guidance range of $3.15 to $3.25 per share.

How shares responded: Shares of HP, which is the second largest global supplier of personal computers, plummeted 5.9% to $30.20 in after-hours trading on Thursday, following a 0.2% decline during the regular session. The stock has risen more than 30% this year, significantly outperforming the S&P 500 index’s gain of around 12%.

What to watch: Investors will closely monitor the global chip shortage situation, which could significantly impact HP’s sales this year.

Markets will also keep an eye on the company’s initiatives to minimise the impact of supply constraints like raising inventories for parts like memories and microprocessors and entering into long-term deals with suppliers.

The Markets Today

     

US stocks will be in focus today, ahead of a basket of economic reports from the region.

Context: Wall Street closed mostly higher on Thursday, following a better-than-projected labour-market report.

Details: The US Labor Department reported a decline of 406,000 in initial jobless claims in the week ended May 22. Investors cheered the data, which marked a new covid-19 low and came in below projections of 425,000.

Despite the upbeat jobless claims data, gains for the overall market remained capped as investors rotated from technology shares to cyclical stocks. Shares of Microsoft, Apple and Amazon all traded in the red on Thursday.

Senate Republicans announced their infrastructure counteroffer of $928 billion to President Biden’s $1.7 trillion offer. Markets were also relieved by the Republicans once again rejecting Biden’s proposal to increase corporate taxes.

The blue-chip Dow Jones index added around 142 points to close at 34,464.64 on Thursday, while the S&P 500 rose 0.12% to 4,200.88. Boeing’s shares climbed around 4% on rising optimism around an economic rebound. The tech-heavy Nasdaq 100 bucked the trend and closed lower by 0.33%, at 13,657.85.

Trading is likely to remain muted today, ahead of the long weekend with the US stock exchanges remaining closed for the Memorial Day holiday on Monday.

What to watch: Investors await economic reports on personal spending, income, and consumer sentiment from the US. Personal spending, which surged 4.2% in March, is expected to rise 0.5% in April. The University of Michigan's consumer sentiment is expected to decline to 82.8 in May, from 88.3 in April.

Covid-19 pandemic remains one of the top concerns for the markets, with total cases surging past 33.2 million in the US.

Wall Street is expected to open on a stronger note today, with Dow futures trading higher by around 150 points at 0500 GMT.

Other Markets: European trading indices closed mixed on Thursday, with the FTSE 100 and German DAX 30 down by 0.10% and 0.28%, respectively, and the French 40 and STOXX Europe 600 up by 0.69% and 0.27%.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Germany’s import prices, France’s GDP growth rate, inflation rate, household consumption expenditure and industrial producer prices, Spain’s retail sales and industrial confidence indicator, Turkey's balance of trade and economic confidence index, Italy’s producer prices, Eurozone’s economic sentiment indicator, consumer confidence indicator, consumer confidence price trends, industry confidence indicator and services confidence indicator, India’s foreign exchange reserves, Brazil’s value of loans, America’s goods trade balance, wholesale inventories, MNI Chicago business barometer and Baker Hughes crude oil rigs, Russia’s money supply M2, Canada's government budget value, as well as Mexico’s government budget value.

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