Hewlett Packard (HPQ): How Can Being Right Feel So Wrong
Okay. We blew it. Let’s just get that out of the way right up front. We said Hewlett Packard (HPQ - Annual Report) would issue disappointing guidance, and they didn’t. Their $21.7 billion estimate for sales was right in line with consensus, and after additional cost cutting they should be able to beat on the bottom line. So now it is time to evaluate why we blew it.
One thing we relied on was reseller CDW’s (CDWC) recent earnings report, which showed top-line growth of just over seven per cent. CDW tends to be a good indicator of overall tech trends, we figured. And their PC growth was only 3.1 per cent! How could Hewlett Packard not issue disappointing guidance with that backdrop?
Well, investor expectations for Hewlett Packard were still somewhat reasonable, with the consensus outlook calling for just 4.8 per cent sales growth. Given that only a third of HP’s sales are PCs, they could do the 3.1 per cent industry growth there and make it up in printers and services. Our bad.
Which brings us to another puzzle. Why does everyone talk about Hewlett gaining share and tearing things up, when their positive surprise is 5 per cent growth while DELL is considered a disappointment with guidance that calls for 8.5 per cent growth? Both stocks are trading at similar multiples to earnings and cash flows. Both face the same industry headwinds. But one had high expectations from investors and the other did not.
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