HP Inc (HPQ) To Report Q2 Earnings: What's In The Cards?

HP Inc. (NYSE:HPQ) is set to report second-quarter fiscal 2017 results on May 24. Last quarter, the company posted a positive earnings surprise of 2.7%. Notably, the stock has surpassed the Zacks Consensus Estimate thrice and came in line once over the trailing four quarters. It has an average positive earnings surprise of 3.6%

Let us see how things are shaping up for this announcement.

Factors to Consider

The split from Hewlett Packard Enterprise Company (NYSE:HPE) in Nov 2015 has allowed HP to make customized approach for its businesses which was not possible while they operated as a single entity. The company is working on product innovation and differentiation as well as enhancing the capabilities of the printing business to stabilize the top line.

Furthermore, looking at the data compiled by two independent research firms – Gartner (NYSE:IT) and International Data Corporation – we believe that the downtrend in PC shipments displayed a concrete sign of improvement in first-quarter 2017 compared with the previous quarters.

Notably, for HP, this was the fourth consecutive quarter of year-over-year shipment growth, following five back-to-back quarters of underperformance. The company witnessed a 6.5% increase in PC shipments and raised its market share to 19.5% from 17.9% in the year-ago quarter. We believe that the spin-off from Hewlett Packard Company, as well as restructuring initiatives such as focus on product innovation, pricing, marketing and sales activities, divestment of non-core assets, and job cuts to lower costs, are finally paying off.

HP’s efforts to turn around the business have been commendable and seem to be in the right direction as indicated by the results of the last few quarters. We believe that the benefit of the aforementioned initiatives will have a positive impact on the to-be-reported quarterly results also.

However, macroeconomic challenges and tepid IT spending remain concerns. Competition from the likes of International Business Machines (NYSE:IBM) and Apple (NASDAQ:AAPL) also add to its woes.

Earnings Whispers

Our proven model does not conclusively show that HP will beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP for HP is -2.56%. This is because the Most Accurate estimate of 38 cents per share is a penny lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: HP carries a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock to Consider

Here is a stock which, per our model, has the right combination of elements to post an earnings beat this quarter:

Science Applications International Corporation (NYSE:SAIC) , with an Earnings ESP of +15.0%, and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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