It's a tough time for tech giants. IBM missed its revenue targets. Wall Street worries about Dell's earnings outlook despite a 52% rise in fourth-quarter profit. Then, there's Hewlett-Packard (symbol HPQ). The company handily beat analyst expectations thanks to steady growth in its printer and PC businesses. It also forecast robust earnings for the rest of the year.
With the company less than halfway through its planned cost-cutting measures, more positive earnings surprises may be coming, says Prudential Equity Group analyst Steven Fortuna. "Cost savings, to date, represent only 40% of expected savings for the year, leaving considerable cushion to [profit] margins over the course of the next two to three quarters," Fortuna says. "CEO Mark Hurd continues to realize cost savings well ahead of plan."
Hurd came over from NCR last March, succeeding Carly Fiorina, whose widely panned acquisition of PC maker Compaq was seen as a drag on HP's profitable printer business. Competition by PC makers has been cutthroat as rivals such as Dell slashed prices to gain market share. As part of his plan to improve profitability, Hurd said last July that HP would lay off more than 15,000 workers and cut its stand-alone sales group. The company expects the move to save it $1.9 billion a year.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What impresses Fortuna is the company's ability to squeeze out profits from the PC unit, which generated net profit margins of 3.9% in the past quarter, instead of solely going after market share. "While we still believe there is a fundamental margin disadvantage relative to Dell, HP is clearly closing the gap," he says.
Meanwhile, HP's printer business continues to flourish. Profit margins of 14.9% mean the company has room to focus more on research and development to stay ahead of competitors, says Fortuna. "At this point we do not see Dell as a risk to HP's printer franchise," he says. HP stock, currently $34 and near its 52-week high, sells at 18 times the $1.94 per share that analysts, on average, expect HP to earn in the year ending this October, according to Thomson First Call. Fortuna rates the stock "overweight" and has a 12-month price target of $39.
--Thomas M. Anderson
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
How to Manage Risk With Diversification"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are SayingFederal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
