What the future holds for HP (HPQ), after impressive 2021 performance

Near-term prospects of the information technology industry look mixed, with challenges like chip shortage and supply chain issues undermining the benefits of high demand and widespread technology adoption. PC maker HP Inc. (NYSE: HPQ) got a much-needed boost as the demand for its personal computers and other products rose sharply during the pandemic due to the shift to remote work/study.  

Stock Rallies

HP ended fiscal 2021 on a positive note, reporting fourth-quarter earnings and revenues that topped expectations. The strong outcome triggered a rally last week and the company’s stock climbed to a multi-year high. HPQ is relatively cheaper than most of its peers in the tech space, but the current valuation looks slightly on the higher side. The stock is unlikely to continue growing, rather experts see a modest pullback in the coming months.

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HP Inc. Q4 2021 Earnings Call Transcript

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Interestingly, the Palo Alto-based technology firm is quite bullish on its post-reopening prospects. According to the management, the return-to-office process would lift demand because businesses, in general, are likely to revamp/upgrade their digital infrastructure. But the question is how long the trend would stay. Naturally, the focus will be on commercial customers going forward.

A Tough Job

The company has come out of a prolonged slump, registering stable sales and profit growth over the past several quarters, with earnings beating analysts’ estimates consistently. But it has to tackle multiple challenges before tapping into the unfolding opportunities, including the supply chain disruption and deepening chip shortage.

Another concern is shrinking margins in the printer business, which offsets the strong margin performance of the other segments. Though sales improved during the shutdown as home-bound employees and students bought new printers, the recovery looks temporary. The bright spot, however, is the subscription-based instant ink service and emerging industrial 3D printing business.  

“Our progress against our strategic priorities is also driving strong cash flow and we continue to be disciplined towards of capital. We have our robust returns-based approach that we are applying to every aspect of our capital allocation. We will continue to invest in areas where we see growth opportunities while continuing to return capital to our shareholders. We believe our share remains undervalued and we are committed to aggressive reported levels of at least $4 billion in fiscal year ’22,” said Enrique Lores, chief executive officer of HP, during his post-earnings interaction with analysts.

Strong Q4

Fourth-quarter earnings, on an adjusted basis, increased 52% annually to $0.94 per share. Driving the growth, revenues advanced 9.3% to $16.7 billion. Both numbers beat Wall Street’s prediction. Reflecting the management’s shift in focus to commercial customers, commercial PC sales grew in double digits while consumer sales dropped slightly. The personal systems segment that includes PCs, laptops, and workstations accounted for more than two-thirds of total revenues.

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All you need to know about Hewlett Packard Enterprise’s Q3 2021 earnings results

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The company’s stock has maintained an uptrend since the earnings announcement. In the past six months alone, it gained about 20%. The shares traded sharply higher on Monday afternoon, after crossing the $35-mark at the opening.