Why HP Is Still Trading at a Discount to Analyst Estimates


Jul. 2 2016, Updated 10:05 a.m. ET

Europe accounts for 34% of HP’s total revenues

On Friday, shares of technology (XLK) firm Hewlett-Packard (HPQ) fell 5.3% on news of Britain leaving the European Union (FEP)(EFA).

As the chart below shows, Hewlett-Packard derived 34% of total revenues from EMEA (Europe, the Middle East, and Africa) in fiscal 2Q16. This is a significant amount, so the stock fell more than 5% on Friday, driven by investor concerns.

Revenues fell 13% year-over-year in the EMEA region in fiscal 2Q16 for HPQ.

Shares of peer companies Apple (AAPL) and Western Digital (WDC) fell 2.8% and 5.9%, respectively.

HPQ’s forward PE and analyst recommendations

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As of June 24, Hewlett-Packard was trading at a forward PE (price-to-earnings) multiple of ~7.52x versus the industry average of 20.6x. In the trailing 12-month period, the company’s PE has been 6.4x. Notably, the company is trading at a lower PE than Western Digital (WDC) and Apple (AAPL). Apple and WDC have forward PE multiples of 10.3x and 11.8x, respectively.

Of the 29 analysts covering HPQ, 13 have “buy” recommendations, one has a “sell” recommendation, and 15 have “hold” recommendations. Analysts’ stock price target for the company is $14.5, with a median target estimate of $14. HPQ is trading at a discount of 8.1% to its median target.


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