HSBC downgrades HP Inc to ‘hold’ on cost pressures, trims price target

Investing.com — HSBC downgraded HP Inc (NYSE:HPQ) to “hold” from “buy,” given the near-term cost pressures in the PC segment that are expected to weigh on profitability in the first half of fiscal 2025.

Brokerage also lowered its price target for the stock to $38 from $39.

HP’s fourth-quarter results were largely in line with consensus but exceeded HSBC’s expectations for operating and net profit due to stronger margins and lower-than-expected interest expenses. Adjusted earnings per share were 5% ahead of HSBC’s estimates and aligned with market expectations.

Revenue grew 1.7% year-on-year, driven by a 5% increase in the commercial PC business, offset by a 4% decline in the consumer PC segment and flat growth in printing. However, operating margins in the PC segment fell to 5.7%, as HP faced higher commodity costs.

HP anticipates mid-single-digit growth in the PC market in 2025, driven by the adoption of AI-enabled PCs, which accounted for over 15% of shipments in the fourth quarter. The company expects AI PCs to make up 20% of its shipments next year. However, the print segment is forecast to decline by low-single digits.

“HP expects cost pressure to continue in the first half of next year and this, in addition to seasonality, was one of the key drivers of weak outlook,” HSBC noted, adding that HP management expects a recovery in the second half, aided by a PC refresh cycle and stronger commercial demand.

HSBC pointed to positive longer-term drivers such as the Windows 11 transition and higher demand for AI personal computers but noted near-term cost challenges.

The new price target implies a 2.8% downside for HP shares.