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Hewlett-Packard Shares Sinking As Whitman's Warnings Sink In

This article is more than 10 years old.

Hewlett-Packard shares are trading sharply lower Thursday as the Street absorbs some of the cautious commentary provided after the close yesterday by CEO Meg Whitman.

While Q3 profits matched the company's recently revised guidance, revenues fell short of Street estimates. The company also reduced full-year profit guidance and provided no hard revenue guidance. Whitman warned that the company was feeling the impact of a weak macro economy and intense competition in PCs and elsewhere; she said that some of the company's efforts to fix the company for the long-run could hurt results in the short-run. In short, she said that HP is just starting on its turnaround plan, with a long, long way to go.

Message received.

While the stock had traded higher in after-hours dealings late yesterday, apparently on some relief that the results weren't even worse than reported, this morning a gloomier mood is dragging the stock lower, as the Street slashes estimates and price targets.

Here's a brief look at the reactions from some Street analysts to yesterday's report.

  • Jefferies analyst Peter Misek repeats his Hold rating, but cuts his target to $17, from $21. Misek also cut his FY 2013 EPS forecast to $3.58 a share, from $4.07, due to "challenges in all of HP's segments."
  • Topeka Capital analyst Brian White maintains his Hold rating, but cuts his target to $17.75, from $23.50. "[M]anagement made a point to remind investors that HP remains in the 'early stages' of a turnaround, while highlighting an increasingly challenging economic backdrop and growing competitive pressures in the PC market," he writes. "We believe the HP turnaround will take time and investors will be dealt head fakes along the way."
  • Mizuho Securities analyst Abhey Lamba keeps his Hold rating and $22 target. "While cost cutting plans are moving along well, the revenue headwinds could weigh on HP’s performance in the near term," he writes. "We remain on the sidelines until we see signs of improved execution."
  • FBN Securities analyst Shebly Seyrafi keeps his Sector Perform rating but cuts his target to $22, from $25. "Like DELL, HPQ is facing very strong competition from the Asian companies of Lenovo, Acer and Asus," he writes. "The bottom line is that although we are encouraged by the EPS beat and the printer performance, there are still too many challenges (PC competition/pricing, high IPG [Imaging and Printing Group] channel inventory, services operating margin still being weak, high Europe exposure) for us to go positive at this time in spite of the stock having a relatively low P/E multiple."
  • Needham analyst Richard Kugele repeats his Underperform rating. "We are deeply troubled by the events at HP and within the broader PC landscape," he writes. "In our view, these issues include: 1) macroeconomic headwinds weighing on IT spending (and expected to continue “well into F13”); 2) a fundamental shift in printing habits, impacting IPG; 3) a once-strong services business that is seeking to recreate former pricing power; 4) a PC business struggling to find a place in the new tablet/ultrathin world while fighting off bottom-feeders; and 5) making lemonade out of the lemon Autonomy acquisition."
  • Sterne Agee analyst Shaw Wu keep his Buy rating and $31 target - one of the few remaining bulls on the stock.. "HPQ posted a solid quarter and essentially in-line guidance," he writes. "However, concerns with its quality of earnings given the large amount of restructuring charges and negative tone on its conference call unfortunately overshadow the considerable improvement made in its balance sheet."

There are more where those came from: in particular, Deutsche Bank repeated a Sell rating, cutting its target to $15, from $20, while Credit Suisse reiterated a Neutral rating, while trimming its target to $25, from $30.

HPQ this morning is down $1.42, or 7.4%, to $17.79.