The Zacks Analyst Blog Highlights: Hewlett Packard, Canon, Lexmark, Apple and Dell

The Zacks Analyst Blog Highlights: Hewlett Packard, Canon, Lexmark, Apple and
                                     Dell

PR Newswire

CHICAGO, Nov. 20, 2012

CHICAGO, Nov. 20, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Hewlett Packard Company
(NYSE:HPQ), Canon (NYSE:CAJ), Lexmark (NYSE:LXK), Apple Inc. (Nasdaq:AAPL) and
Dell Inc. (Nasdaq:DELL).

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Here are highlights from Monday's Analyst Blog:

Earnings Preview: Hewlett-Packard

Hewlett Packard Company (NYSE:HPQ) is scheduled to announce its fourth quarter
2012 results on November 20, 2012. In the run-up to the earnings release, we
noticed a downward trend in analysts' estimates.

Third Quarter Overview

The company reported third quarter 2012 earnings per share (EPS) of $1.00,
beating the Zacks Consensus Estimate by a penny. Revenues declined 5.0% year
over year to $29.7 billion. Revenue declines were broad-based across segments
and geographies.

Gross margin in the quarter stood at 23.1% compared with 23.4% in the year-ago
quarter. Gross margin was impacted by improvements in IPG and Software
margins, but were offset to a considerable extent by declines in PSG and
Services.

Diluted GAAP loss per share was $4.49 compared with earnings per share of 80
cents in the comparable prior-year quarter. This loss can be attributed to the
write down in lieu of Electronic Data Storage (EDS). After adjusting for
special items, non-GAAP net earnings per share were $1.00 compared with $1.10
in the prior-year quarter.

The company projects fiscal 2012 non-GAAP diluted EPS of between $4.05 and
$4.07 and GAAP loss per share of between $2.23 and $2.25.

Agreement of Analysts

Four of the 23 estimates for the fourth quarter were lowered over the last 30
days with none moving in the opposite direction. For the first quarter of
2013, two analysts made downward revision over the last 30 days, while only 1
analyst revised the estimate upward. For fiscal 2013, while five analysts
revised their estimates downward over the last 30 days, none made an upward
revision.

Analysts are generally cautious about the PC market, where demand could weaken
further. HP is likely to resort to aggressive pricing, which would not
however, fully offset the effect of weak demand. As a result, its Personal
Systems business would suffer. Marketing and promotion strategies are expected
to continue in the near term, although the resultant negative effect on the
bottom line would be offset by recent restructuring actions.

This apart, both the industry and HP itself entered the quarter with high
inventories in a particularly low-demand environment. Therefore, this
inventory would also need to be worked off.

Although some analysts believe that the decision taken by the company to
continue with its PC business is correct, others are of the opinion that the
PC segment is going to be badly affected due to its cannibalization by
tablets. If the ultra portable new-age devices from HP are a hit, the company
may be able to cut its losses.

Analysts also believe that HP is facing significant competition in the
printing space given the continuous roll out of printing devices at
competitive prices by other technology giants including Samsung, Canon
(NYSE:CAJ), Epson and Lexmark (NYSE:LXK). This may initiate a price war in the
printing space, which may hurt HP's margins to a certain extent.

Magnitude of Estimate Revisions

Following the announcement of third quarter 2012 results, there have been
certain estimate revisions. Though the Zacks Consensus Estimate for the
upcoming quarter has remained constant over the last 30 days, it has gone down
4 cents over the last 90 days to $1.14. For the January quarter, the estimate
dropped a penny over the last 30 days and by 18 cents over the last 90 days to
85 cents.

For fiscal 2012, the Zacks Consensus Estimate dropped by a cent over the last
30 days and by 3 cents over the last 90 days to $4.03 per share. The fiscal
2013 estimate dropped by 2 cents over the last 30 days and by 13 cents over
the last 90 days to $3.46.

Recommendation

Hewlett-Packard dominates the computing world with its strong business model
and strong position in both PC and Server segments. However, the recent
downturn in the PC market and a not-so-favorable pricing environment took a
toll on the business fundamentals of the company.

Management's decision to continue its PC business looks prudent. On the other
hand, HP is expected to witness significant competition from the likes of
Apple Inc. (Nasdaq:AAPL) and Dell Inc. (Nasdaq:DELL).

The company has a Zacks #4 Rank, implying a short-term Sell rating.

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