Citi recently upgraded HP Inc. stock, joining BofA Securities in their positive outlook for the company’s sales of personal computers and free cash flow. Asiya Merchant, an analyst at Citi, raised her rating on HPQ’s stock from Neutral to Buy and increased the target price from $31 to $33. This new target price indicates a potential gain of 16% compared to the previous closing price on Friday.
While the S&P 500 experienced a 0.4% decrease, HP’s stock saw a slight increase of 0.3%, trading at $27.71 in early trading on Monday. Merchant attributes this optimism to the expected surge in demand for PCs, which would consequently drive up revenue for this segment.
Merchant also highlights the historical correlation between higher PC revenue growth rates and increased free cash flow generation and shareholder returns. This implies that if the demand for PCs continues to rise, HP is likely to experience a boost in their financial performance.
It’s worth noting that BofA Securities analyst Wamsi Mohan also upgraded HP’s stock to Buy from Underperform in October. Mohan cited similar reasons, including better demand for PCs and the growth in free cash flow, as factors contributing to the upgrade.
The COVID-19 pandemic initially led to a significant increase in PC demand as more people began working from home and required desktops and notebooks. However, as offices and schools reopened, this demand gradually faded, leading to a 16.5% decline in worldwide shipments from 2021. However, recent statements from Intel and Samsung Electronics suggest that the industry is now experiencing a recovery. Samsung mentioned that customers are likely to seek replacements for devices purchased during the pandemic, creating an opportunity for increased demand in the PC and mobile device market. Intel’s CEO, Patrick Gelsinger, also expressed positive sentiments regarding consumption.
HP is set to report its fourth-quarter earnings on November 21, providing further insight into the company’s performance.
Despite the positive outlook, it’s important to note that not everyone shares the same optimism for HP’s stock. Warren Buffett’s Berkshire Hathaway reduced its holdings of HP shares in September, suggesting a more cautious approach. Berkshire Hathaway had initially accumulated the stake in early 2022.