Hewlett Packard Company (HPQ) is scheduled to announce its second quarter 2010 results on May 18, 2010 and we don’t see too much variation in analyst estimates at this point.
Third Quarter Overview
The company reported decent first quarter 2010 numbers, with EPS of $1.10 exceeding the Zacks Consensus Estimate by 4 cents.
HP delivered $31.2 billion in revenue, up 8.0% from $28.8 billion reported in the year-ago quarter. Revenue increased across all businesses excluding services. In particular, the Personal Systems Group (PSG) revenue was, up 20.0% year over year, helped by a 26.0% year-over-year increase in unit shipments.
The BRIC countries, particularly Asia was strong, with a revenue increase of 26.0% compared to the year ago quarter. This apart, the company generated $2.4 billion of cash from operations and exited the quarter with quarter with $13.6 billion in cash and short-term investments.
For the second quarter of fiscal 2010, management projected revenue in the range of $29.4 billion to $29.7 billion, GAAP diluted EPS of $0.89 to $0.91 and non-GAAP diluted EPS of $1.03 to $1.05.
For fiscal year 2010, the company expects revenue of $121.5 billion to $122.5 billion, up from its previous estimate of $118.0 billion to $119.0 billion, with GAAP diluted EPS expected to be in the range of $3.79 to $3.86, up from the previous estimate of $3.65 to $3.75, and non-GAAP diluted EPS expected to be in the range of $4.37 to $4.44, up from the previous estimate of $4.25 to $4.35.
Agreement of Analysts
Out of 28 analysts providing estimates for the second quarter, 2 have made upward estimate revisions in the last 30 days, while there were no downward revisions. For the July quarter, 4 analysts made upward revisions in the last 30 days, while 2 made downward revisions. This apart, out of 30 analysts tracking the stock for fiscal year 2010, there were 3 upward revisions in the last 30 days and 1 downward revision.
Most of the news flow relating to HP continues to be positive. As per the figures published by IDC, HP still rules the computing world, with the largest market share of 19.7% and registering a unit shipment growth of 19.9% in the first quarter of 2010. This apart, the company has completed the acquisition of networking major 3Com. HP will now be able to challenge networking leader Cisco Systems Inc. (CSCO), and can gain market share in the networking business.
Magnitude of Estimate Revisions
The magnitude of revisions is also minimal since the company reported its first quarter 2010 results. Overall, estimates for the upcoming quarter have gone up from $1.03, 90 days ago to $1.05 (current), with no changes in the Zacks Consensus Estimate over the past 30 days.
For fiscal 2010, estimates have gone up from $4.37, 90 days ago to $4.45 (current). There has been no revision over the past 30 days. For 2011, estimates have gone up from $4.78, 90 days ago to $4.90 (current), with just 1 cent upward movement in the last 30 days.
Recommendation
We are optimistic about the company’s positive outlook for fiscal year 2010, its enhanced product portfolio, growing customer base and the revival in the macroeconomic scenario. Although we remain positive on the company’s performance going forward given that demand is stabilizing and cyclical businesses (particularly consumer PC) are rebounding, we remain concerned about the long-term growth prospects of its printing unit. HP also plans to control costs and generate incremental savings, which is essential for the company to maintain growth in the upcoming quarters.
We currently have a Neutral recommendation on HPQ.
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