Analysts Are Split on HPQ Stock Ahead of Earnings

Concept art of an HP (ticker: HPQ) laptop

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Analysts aren't expecting a blowout quarter for HP (HPQ, $32.15), but they do believe the PC and printer maker churned out slow and steady growth in the three-month period ended July 31.

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HP is slated on the earnings calendar to unveil its fiscal third-quarter results after the Aug. 30 close. Analysts, on average, expect the company to report earnings per share (EPS) of $1.04, up 4% on a year-over-year (YoY) basis. Revenue is projected to rise 3.3% to $15.8 billion.

Wells Fargo analyst Aaron Rakers is upbeat about HP's ability to post strong free cash flow, as well as its rich portfolio mix that includes commercial PCs and premium gaming computers. However, he's negative on HPQ stock ahead of earnings, and recently downgraded shares to Underweight, the equivalent of Sell.

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"There is an increasingly likely scenario in which HP shares could see relative underperformance through the remainder of 2022 and into 2023," Rakers says, citing increasing weakness in PC sales and HP's sensitivity to macroeconomic headwinds.

But Credit Suisse analyst Shannon Cross is taking a glass-half-full approach to HPQ stock, which happens to be one of the more recent additions to the Berkshire Hathaway equity portfolio. The analyst, who initiated coverage of HPQ with an Outperform (Buy) rating in mid-August, recently turned positive on the IT hardware sector following a significant pullback in several industry components this year.

"We expect the PC industry to slow with macro weakness and following significant outperformance during the pandemic," Cross says. "However, average selling price improvement should somewhat offset, given a mix shift to corporate PCs and inflation-driven price increases."

Cooling Consumer Demand to Weigh on Best Buy

Consumers' demand for electronics – including PCs – will also be in focus when retailer Best Buy (BBY, $75.23) reports second-quarter earnings ahead of the Aug. 30 open.

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The company in late July warned that its Q2 results will come in below what it guided for in May, as "high inflation has continued and consumer sentiment has deteriorated."

CFRA Research analyst Kenneth Leon (Hold) echoes this sentiment. "Concerns have shifted from supply-chain delays to the health of the U.S consumer and appetite to purchase consumer electronics, especially large ticket items," the analyst writes in a note to clients. "Should there be excess inventory, we see risk to higher promotions in the industry that may put pressure on gross margins or SG&A for the company."

Still, Leon points to Best Buy's "strong balance sheet," which will allow the company "to fund the dividend, remodel select stores and streamline to smaller stores, where possible."

For BBY's second quarter, consensus estimates are for earnings of $1.29 per share (-56.7% YoY) and revenue of $10.3 billion (-13.4% YoY).

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Lululemon Athletica (LULU, $312.24) will deliver its second-quarter earnings report after the Sept. 1 close. William Blair analyst Sharon Zackfia (Outperform) anticipates a "healthy" quarter for the maker of athletic apparel.

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"We believe sales strength was broad-based across regions, with China an anomaly given pandemic-related disruptions," Zackfia says. "Domestic inventory levels appeared fresh and more robust than the year-ago period in which stores were under-inventoried, which we believe supported sales."

That upbeat outlook is shared by Stifel analyst Jim Duffy, who rates the consumer discretionary stock at Buy. "Despite the challenging backdrop for many, we have confidence in LULU's fundamental resilience and capacity for outperformance relative to expectations," Duffy says. The analyst's confidence stems from several factors, including "relative momentum versus peers entering the quarter, the strong merchandise assortment and consumer reception to new product (including footwear, golf, tennis, and hike), and deeper inventory positions than the year prior where inventory flow challenges and out-of-stocks compromised merchandise assortments."

Analysts, on average, see LULU reporting earnings of $1.86 per share in its second quarter, up 12.7% over the year prior. Revenue is forecast at $1.8 billion (+20% YoY).

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.