Signs that Hewlett-Packard Co's turnaround plan is finally yielding results prompted at least one brokerage to raise its rating on HP shares and eight others to raise price targets, setting up the stock for a bounce on Wednesday.
Expectations were low for HP's fourth quarter following a disappointing third quarter and after rivals IBM and Cisco Systems Inc reported poor results.
Continue Reading Below
But HP surprised on Tuesday by reporting stronger-than-expected revenue due to growth in its enterprise group, which supplies servers, storage and networking products to business.
HP shares were up 5.8 percent at $26.54 before the bell.
HP's enterprise sales rose 2 percent compared with a year earlier but 12 percent compared with the third quarter.
The company also maintained its full-year earnings forecast, which J.P. Morgan Securities analyst Mark Moskowitz said was "more than plenty good after Cisco's big disappointment."
Moskowitz, who raised its price target to $30 from $29, said HP's comments on PCs, printing and the enterprise group could suggest a potential bottoming in the company's model, which could attract value-based and long-only investors.
The company, which has been moving away from a declining PC industry, reported a smaller-than-expected drop in PC sales.
"In short, HP didn't guide down for 2014 and that is quite positive so far versus many in 'old tech'," Barclays analyst Ben Reitzes said in a research note.
Reitzes raised his price target to $28 from $26.
Some analysts had expressed concern that a slowdown in China would hurt HP. Cisco had warned of weakness in China, while IBM's sales in China declined in the latest quarter.
But Reitzes said HP seems to be managing volatility in emerging markets far better than its peers, noting revenue in the Asia Pacific region grew 4 percent in the quarter.
Growth in the region was helped by a contract to supply laptops to the Indian state of Uttar Pradesh, which BMO Capital Markets valued at about $450 million. HP has not disclosed the value of the contract.
Evercore Partners raised its rating on HP stock to "equal-weight" from "underweight", citing an improving balance sheet and a moderation in the decline of its PC and printer businesses. Evercore raised its price target to $25 from $20.
Among the eight others raising price targets, three increased to $30. Credit Suisse was the biggest mover, with a price target increase to $30 from $25.
HP shares hit a 12-month high of $27.77 on August 2. The stock hit its 12-month low of $12.22 in November last year.