HPQ operates the PC and Printing businesses of the old Hewlett Packard, while HPE sells products designed for corporate use, such as servers, storage and networking equipment.
In the most recent fiscal year, the PC business, or Personal Systems as HPQ calls it, accounted for 68% of total revenues, with 70.4% of personal systems coming from laptops. Printing accounting for 32% of total revenues. Printing supplies are the highest margin product for HPQ, and printing contributes 54% of total operating profit for HPQ.
The company plans to further diversify its product line with its recent acquisition of Poly (the former Plantronics) for $3.3 billion. HPQ will sell Poly’s headsets and video equipment to corporate customers.
Still, PCS and Printers remain the company’s bread and butter. In fact, in the latest fiscal year, demand for PCS and Printers grew above long-term potential as demand was pushed forward by the pandemic, with additional people working from home or spending more on the Internet.
With the overall industry slumping, investors are concerned with how low EPS can go in the October 2023 fiscal year. I believe even in a worst-case scenario, which assumes sales decline 10%, HPQ should still earn $3.00 a share for the year.
The company’s balance sheet and cash generation continue to finance share buybacks, which are very accretive with the stock at its current price and will support earnings comparisons.At 8X this estimate, the stock is incredibly cheap — and I believe we can see long-term PE multiple expansion for HPQ.
While printing and PCs may not be great growth businesses, they generate significant cash flow, and they are not going to go away as product lines. HPQ will be a top competitor in an industry that has become an oligopoly. HPQ is a buy below $26.50. My target is $32. The 4% dividend yield adds to the attraction of the shares.