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H-P May Be Underestimated

By K.C. Swanson
Staff Reporter
02/25/2003 07:20 AM EST
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The early read on Hewlett-Packard’s (HPQ:NYSE – news – commentary – research – analysis) January quarter results is upbeat, with a slew of analysts predicting a penny or two of upside on the earnings front.

Most expect H-P to fend off an earnings slide, maintaining a flat profit in the April quarter — a relatively decent outlook in a tough market.
The bottom line is that the market may have gone too bearish on the hardware company in the short term. Year to date, shares peaked at $20.85 on Jan. 10, but have since slipped 15% to $17.75, as of Monday’s close.

But some analysts are arguing the company deserves more credit. “The highlights of the quarter should be the health in the [printers] division and the reduction in the losses in the PC and enterprise systems businesses, which, for the most part, should reinforce the view that the first part of the acquisition integration is going well,” says Walter Winnitzki, an analyst at First Albany, in a note issued last week. He believes earnings will total 28 cents, a notch above the consensus estimate of 27 cents.

Winnitzki downplayed concerns about an inventory build, saying he hadn’t found any evidence of such a trend. First Albany has no banking relations with H-P.

Merrill Lynch is also gearing for H-P to beat expectations. The firm, which hasn’t done recent banking for H-P, expects it to report January earnings of 29 cents, 2 cents above the consensus estimate. The bank’s revenue projection for the period, at $18.7 billion, also tops the consensus outlook for $18.46 billion.

Merrill believes guidance will be reasonably good for what’s typically a down quarter, predicting H-P will back existing Wall Street expectations for the April quarter. The estimates assume H-P can hold earnings flat, with revenue dipping only a couple of percentage points.