HP Shares Drop Nearly 4% Amid Analyst Downgrade

In a recent report, HP's stock plummeted almost 4% following a downgrade by Bank of America. The analyst expressed concerns over HP's reliance on stock buybacks for EPS growth and highlighted potential declines in printer product profit margins. However, future opportunities could present a positive outlook.

Date: 28-09-2024

AI Rating: 5

Market Reaction and Analyst Downgrade

HP (NYSE: HPQ) experienced a notable decline in its share price, dropping nearly 4% at market close, significantly outperforming the S&P 500's mere 0.1% dip. This decrease was largely attributed to a downgrade from Bank of America's analyst, Wamsi Mohan, who shifted his recommendation from buy to neutral.

Earnings Per Share (EPS)

Mohan's analysis points to HP's reliance on stock buybacks as a mechanism for boosting earnings per share (EPS), rather than achieving organic profitability improvements. This suggests potential concerns about the company's ability to grow its earnings in a sustainable manner.

Profit Margins

Furthermore, the analyst forecasts declines in HP's profit margins for its printer products, which could adversely affect overall profitability. Such a trend could deter investors from considering HP as an attractive investment opportunity.

Opportunities for Improvement

Despite these concerns, Mohan does suggest that certain factors could bolster HP's performance. A robust PC refresh cycle, effective cost-cutting measures from ongoing restructuring, and advantageous strategic tweaks from the newly appointed CEO Karen Parkhill could help uplift HP's fundamentals.

Conclusion

Investors should exercise caution, as the reliance on buybacks for EPS growth and the anticipated decline in profit margins present significant risks. However, the potential for improvement through strategic changes offers a glimmer of hope for the company's recovery.

Stocks: HPQ BAC