28 May 2020

HP To Recharge its Sales Growth

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News shaping
the markets today

     

What’s happening: Shares of HP Inc declined in extended trading on Wednesday, despite the computing giant reporting stronger-than-expected earnings for the fiscal second quarter.

What happened: The covid-19 outbreak forced millions of people to stay indoors and switch to working and learning online, leading to a sharp spike in demand for personal computers and laptops. Despite this strong demand, HP missed the sales estimates for the quarter due to supply chain disruptions at its factories in China due to the pandemic.

Meanwhile, the overall market chaos derailed talks and Xerox withdrew its takeover bid for the Palo Alto, California-based company.

However, HP made some big announcements this week, which is expected to boost growth in the current quarter.

How were the results: The personal computer and printer maker reported a decline in both revenues and earnings for the latest quarter.

  • Revenues declined more than 11% to $12.47 billion, from $14.04 billion in the year-ago quarter, and missed the consensus view of $12.93 billion.
  • Adjusted earnings came in at 51 cents per share, down from 53 cents per share in the same quarter last year. The figure far exceeded the consensus estimate of 44 cents per share.

Why it matters: HP said it expects demand for personal computers and laptops to remain elevated, as companies are asking employees to continue to work from home even though the economy is gradually reopening. The reopening of schools could boost demand further.

The CEO Enrique Lores said in a statement, “We are seeing strong demand from our customers in notebook PC orders and Instant Ink subscriptions, as well as growing interest in 3D printing and digital manufacturing in key verticals such as healthcare. The current environment will be a catalyst for transformation and innovation across HP."

The PC maker yesterday unveiled a new series of monitors and laptops to assist employees in working from home. Various executives termed the launch as the company’s biggest commercial product launch on record.

HP also began the third quarter with a number of backlog orders for notebooks and other products due to supply-chain disruptions. Management announced that most of the company’s production capacity in China is now back to normal and the situation could normalise soon.

Management projected earnings for the fiscal third quarter between 39 cents and 45 cents per share, in-line with expectations of 47 cents per share. HP has, however, withdrawn its forecast for the full year due to uncertainties related to the pandemic.

HP closed the quarter with $4.1 billion in cash and announced plans to delay its $15 billion repurchase plan to maintain liquidity.

How the shares responded: Shares of HP fell 5.2% in after-hours trading on Wednesday, following the release of mixed quarterly results. The stock seems attractive, as it is down 17% this year, underperforming the S&P 500, which has shed 6% year to date.

What to watch: With supply chain disruptions easing, investors expect HP to fulfil its backlog orders and meet the rising demand for notebooks in the current quarter. Investors will look out for any news related to sales growth at the company.

The Markets Today

     

Investors will be monitoring European stocks today, ahead of various economic reports scheduled for the day.

Context: European stocks ended higher on Wednesday, after the European Commission disclosed a massive coronavirus recovery package to help the EU recover from the worst economic crisis since 1930.

Details: The European Commission announced a €750 billion recovery fund, which is backed by all 27 nations of the European Union. The latest move from the EU governing body comes after last week's proposal from Germany and France to set up a €500 billion fund to help support the region's recovery.

Investors were also assessing the rising tensions between Beijing and Washington, with the US administration planning to impose sanctions on Chinese companies due to China’s actions in Hong Kong

Meanwhile, economic data continued to reflect the coronavirus impact on the economy, with the French consumer confidence tumbling to a 16-month low. The consumer sentiment index declined to 93 in May, from a reading of 95 in April.

The pan-European Stoxx 600 index closed 0.2% higher with banking stocks leading the gains in Wednesday’s session. However, health-related stocks bucked the overall market trend, falling 2.5% on Wednesday.

Shares of Tui added to Tuesday’s 52% gains, surging another 15% on Wednesday, due to prospects of easing travel restrictions in Europe. Cineworld’s shares also continued their upturn, gaining another 11% yesterday.

London’s FTSE 100 index surged 1.26%, while the German 30 rose 1.33% and the French 40 closed higher by 1.79% in the previous session.

What to watch: Investors await a basket of economic reports from the Eurozone, including the business climate indicator, consumer confidence, economic sentiment indicator, industry confidence indicator and services confidence indicator. Consumer confidence in the Eurozone is expected to increase 3.2 points to a reading of -18.8 in May. The economic sentiment indicator is likely to rise to 70.3 in May, from a prior reading of 67. Analysts expected the industry confidence indicator to surge to -27 and the services confidence indicator to climb -28.6 in May.

Investors will continue to assess the daily coronavirus cases, with the number of infections surpassing 5,690,950 globally. The UK has confirmed over 268,610 covid-19 cases, while the total cases in Spain were around 236,250.

Other Markets: US indices closed higher on Wednesday, with the Dow, S&P 500 and Nasdaq 100 up by 2.21%, 1.48% and 0.77%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain’s retail sales, inflation rate and business confidence indicator, France’s initial jobless claims, Germany’s inflation rate, Turkey’s economic confidence index, Italy’s consumer confidence index, producer prices and manufacturing confidence index, South Africa’s producer prices, Brazil’s unemployment rate and loan growth, Canada's current account and average weekly earnings as well as the US durable goods orders, GDP growth rate, initial jobless claims, pending home sales, natural gas stocks change and crude oil stocks change.

 

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