Consumer Electronics

Full H-P Earnings Preview (HPQ)

HO LogoHewlett-Packard Company (NYSE: HPQ) may have just clouded its outlook for today’s earnings report.  We have Thomson Reuters estimates at $0.90 EPS on some $27.25 billion in revenues.  But today came word that H-P may jettison part of or all of its outsourcing operations.

If the company gives guidance, we have Thomson Reuters estimates pegged at $1.07 EPS and $29.8 billion in revenues for next quarter.  Next quarter is its fiscal-2009 end and those estimates are $3.75 EPS and $113.2 billion in revenues.

The biggest issue we are taking today is the report from Reuters noting that Mark Hurd and friends are considering selling or closing down parts of its outsourcing business to focus on the higher-margin areas of its technology services offering from the EDS deal.  While this may be an incremental help for the company, you have to wonder when news of this sort comes on the same day of or the same week ahead of earnings.  This sets the tone that investors may feel that the company is signaling a weak operation and this gives the company something to point the finger at.  That is not a universal rule, but how many companies in today’s economy deserve the benefit of the doubt ahead of time?  In reality HP is one of those companies that deserves the benefit of the doubt, but trust is hard to believe in the company after everything we have seen in 2007 to 2009.

H-P’s chart has already taken a bit of a breather when you consider today and yesterday.  On Thursday and Friday this chart was looking very overbought as this climbed from $37 in mid-July to over $44.00.  Just to show how much it has run up, its 50-day moving average is $39.93 and the 200-day moving average is all the way down at $35.44.  With shares north of $43.00 today, we have a 52-week range of $25.39 to $49.20.

Options traders appear to be braced for a move of $1.50 to $2.00 in either direction, but be advised that these options expire Friday.  The Wall Street analysts have a $48 to $49 average price target on the stock.

The company’s earnings conference call can be accessed here.

JON C. OGG
August 18, 2009