HP Inc. Stock Is Finally Getting Some Respect

By Markets Fool.com

Oct. 10 was a banner day for HP (NYSE: HPQ) shareholders as the stock hit a 52-week high of $15.88 a share before easing by the end of trading. Still, with a 30% jump in value year to date, HP is riding high. What was the impetus for Monday's stellar run?

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It appears that some of the analysts who've been on the HP fence or were bearish due to the "dying PC market" have finally decided that the rampant gloom and doom was overblown. The good news is that there are multiple reasons for pundits and investors to like what HP CEO Dion Weisler and team are accomplishing.

There is a caveat to the recent good tidings, however.Wall Street's recent upgrades of HP stock are still overly conservative, which should be music to the ears of growth and income investors.

Image source: HP.

Earning respect

HP analysts chimed in with either upgrades, raised price targets, and/or reiterated positive recommendations on Monday, and it's about time. As HP demonstrated last quarter, and is expected to do again this quarter, it's hitting on most cylinders and even an area of concern for some -- total sales -- has been more than made up for by strength in other areas.

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Yes, HP's total revenue declined 4% last quarter to $11.9 billion, but it obliterated the bearish analyst expectations of just $11.44 billion, as did earnings per share of $0.48 compared to the $0.44 pundits had forecast. But HP's slight revenue hiccup was easy to overlook when investors dig a bit deeper, particularly margins, expenses, and non-GAAP (excluding one-time items) net earnings from operations.

Thanks in large part to HP shaving $600 million in expenses yearover year, its net earnings from continuing operations actually climbed 20% before taxes to $843 million last quarter, before it took a hit for "discontinued operations." Weisler's strict expense management efforts are also boosting margins across the board.

HP's personal systems division reported margins of 4.4% las quarter, up from just 2.8% a year-ago and nearly a full percentage point higher than the previous quarter. Printing, HP's Achilles' heel -- though its issues are being addressed -- grew margins to a sky-high 20.4%, well above last year's 17.4%.

Still underappreciated

Though HP has earned a nod from industry analysts of late, their target prices don't reflect quite as much confidence as Oct. 10's positive stock price movement might indicate. Most of the targets are around the $16-a-share range, which HP stock is nearly at already. If printing is the concern, which it very well could be given its woeful performance last quarter, that shouldn't dissuade investors because HP has a plan.

Last quarter's $4.42 billion in printer sales was a 14% drop compared to 2015's $5.16 billion. Much of the revenue decline can be attributed to HP's supply segment. HP fans have likely heard about its recent $1.05 billion deal to acquire Samsung's (NASDAQOTH: SSNLF) printing and copier business, which includes some assistance for HP's printing supply woes as well.

Bringing Samsung's printing business in-house will not only ramp up sales thanks to its cutting-edge printer-copier lineup utilizing multifunction printer (MFP) technology, the deal also includes the Korea-based giant's supply business and a portfolio of more than 6,500 patents. Weisler's strategy of targeting specific niche markets, just as with HP's surprisingly strong PC division, will also play a key role in turning around its printing results.

The new Sprocket pocket-sized printer is the most recent example of HP's targeted approach. At $130, the Sprocket isn't likely to make a dramatic impact on sales in and of itself. However, its smartphone compatibility and targeting of the world's social media and selfie photogs is right up HP's strategic alley. And with an expected 2.5 trillion pictures snapped this year, those inexpensive Sprockets will require a lot of supplies.

PCs are soaring -- HP topped the U.S. sales list last quarter. HP also boasts a stellar 3.2% dividend yield, is running a leaner, meaner operation, and printing is being addressed. A price target of $16, even with an analyst's "buy" recommendation? The grudging respect is nice, but HP warrants more.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.