Hewlett Packard Earnings Preview: Second Quarter 2009

Hewlett Packard [[HPQ]] is scheduled to report their fiscal second quarter 2009 results after the market closes on Tuesday, May 19. Based on our analysis, we at EarningsPreviews.com are expecting HPQ to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $27.28 billion and EPS of $.86. This would represent a 3% decrease in revenues from last year’s $28.26 billion in the same period. The current analyst consensus estimates calls for revenues of $27.40 billion and EPS of $.85. On February 18, the company provided quarterly revenue guidance of a 2 – 3% decline in revenues and non-GAAP diluted EPS of $.84 – $.86.

 

Despite the weak global PC market, we expect that Hewlett Packard will report quarterly results that are at the top end of their conservative guidance range. Fellow Dow components, Intel [[INTC]] and IBM [[IBM]] both have already reported better than expected results. In addition, Cisco Systems not only reported better than expected quarterly results, but also commented that they’re seeing stabilization in the market place. All of which should be positive indicators for HPQ.

 

Despite the challenging market environment in 2009, HPQ only expects revenues to decline 2 – 5% for the year. This is a testament to the company’s strong management and diversified revenue streams. Currently, the company receives almost two-thirds of its revenues from outside the U.S. This strong global positioning and their recent EDS acquisition should yield strong results as the economy begins to show substantial recovery.

 

Share Performance

Since the beginning of the year, Hewlett Packard’s shares down less than 4%. In 2008, HPQ’s shares fell 28% as the Dow component slightly outperformed the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 9x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. While Hewlett Packard’s shares appear to be slightly undervalued, we would exercise caution as the markets are likely to see another correction in the near term.

 

Recommendation: Hold with a $38 price target.

 

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