HP's FQ3 Results Beat Expectations and PC Pricing Improved; Bernstein Raises Target Price to $32 but Maintains Market-Perform

Overview

This report assesses the drivers and sustainability of HP's better-than-expected FQ3'26 results. Bernstein believes the most difficult phase may have passed: PC price increases and an improved product mix are supporting higher revenue and earnings forecasts, while cash flow was also strong. However, input costs are still catching up to market levels, and Personal Systems margins are not expected to bottom until FQ4, so Bernstein maintains its Market-Perform rating.

Core views

HP delivered a broad-based beat in FQ3'26. Adjusted earnings per share were $0.83, well above the company's original guidance of $0.61 to $0.71 and the consensus estimate of $0.63. However, this included a $0.11 per share benefit from tariff refunds; excluding this benefit, underlying earnings per share were approximately $0.72, still slightly above the upper end of the original guidance range. Quarterly revenue reached a record $15.7 billion, up 13% year over year, driven primarily by Personal Systems, while Printing was broadly in line with expectations. Following the results, the company raised FY26 non-GAAP earnings-per-share guidance from $2.90 to $3.10 to $3.19 to $3.29. The new guidance includes an estimated full-year tariff-refund benefit of $0.19 per share; excluding this item, guidance would be approximately $3.00 to $3.10. Tariff refunds therefore explain most of the headline guidance increase, but the company also raised the lower end and midpoint of its underlying guidance, indicating that the operating improvement is not entirely dependent on a one-time refund. Free cash flow was another positive factor. HP raised its FY26 free-cash-flow guidance from $2.8 billion to $3.0 billion to $3.0 billion to $3.2 billion, increasing both ends of the range by $200 million. Management stated that the improvement primarily reflected strong Personal Systems performance and disciplined working-capital management, with tariff refunds making only a limited contribution. FQ3 free cash flow was approximately $1.6 billion, bringing year-to-date free cash flow to more than $2.5 billion. Personal Systems was the quarter's key driver. Revenue increased 18% year over year to a record $11.8 billion despite a 16% year-over-year decline in unit sales, indicating a substantial increase in implied average selling prices. The report attributes this performance to disciplined price increases, a greater mix of premium and commercial PCs, AI PCs and workstations, as well as growth in attach sales. Price realization occurs with a lag because different sales channels and contract structures cause new prices to take effect either immediately or several months later. Meanwhile, the benefit from lower-cost inventory on the balance sheet used earlier in FY26 has largely ended, and higher-cost memory and storage inventory is gradually flowing through the income statement. Consequently, both selling prices and recorded input costs are catching up to current market levels. Management continues to expect further price increases, while costs will also continue to rise. Cost pressures reduced the Personal Systems operating margin to 4.6%, below HP's long-term range, as higher commodity and component costs outweighed the benefits of repricing and cost-reduction measures. Management still expects FQ4 to mark the margin trough. Thereafter, price increases on long-term customer contracts and other structural cost-reduction measures should contribute gradually. FY27 input costs are still expected to rise, but at a slower pace. Together with a higher premium-product mix, the report expects Personal Systems margins to recover sequentially and return toward the long-term range in FY27. Printing was broadly in line with expectations. Revenue declined 2% year over year and 4% in constant currency. Lower supplies and hardware unit sales were partially offset by industrial printing, subscriptions, higher average selling prices for consumer printers, and 42% unit growth in ink-tank printers. The Printing operating margin was 18.1% under the report's methodology, but tariff refunds contributed more than they did in Personal Systems. Excluding the refunds, the margin was in line with guidance and at the low end of HP's long-term range of 16% to 19%. Based on stronger PC pricing and product mix, Bernstein raised its FY26 and FY27 earnings-per-share forecasts from $3.00 and $3.04 to $3.29 and $3.54, increases of 10% and 16%, respectively. The target price was raised from $27 to $32, still based on 9 times FY27 earnings per share of $3.54. The valuation multiple was unchanged and is consistent with the average level over the past 10 years. Based on the August 26, 2026 closing price of $30.52, the report indicates potential upside of approximately 5%, and therefore maintains its Market-Perform rating.

Analysis framework

Bernstein first separates reported earnings per share into underlying operating contributions and the effect of tariff refunds to determine whether the earnings beat had a fundamental operating basis. It then analyzes revenue, unit sales, pricing, product mix and margins across the Personal Systems and Printing businesses. The report further examines the timing lag between channel price increases and higher-cost inventory flowing through the income statement to assess the expected FQ4 margin trough and FY27 recovery path. Finally, it updates the earnings model and adjusts the target price while keeping the valuation multiple unchanged.

Methodology notes

• Industry/Sector Analysis FrameworkPrice-Volume Decomposition

  Decomposition of Personal Systems revenue, unit sales and implied average selling prices

  The report compares 18% revenue growth with a 16% decline in unit sales and concludes that growth was driven primarily by price increases, product-mix upgrades and attach sales rather than shipment expansion.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Value-Chain Pass-Through

  Lagged pass-through of channel pricing and input costs

  The report analyzes how different channels and contracts cause price increases to take several months to pass through, as well as how higher-cost memory and storage inventory gradually flows through the income statement, to assess the timing of the margin trough and recovery.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Analysis of free-cash-flow guidance and working-capital contributions

  The report evaluates cash-generation capacity from Personal Systems performance and working-capital management by considering approximately $1.6 billion of FQ3 free cash flow, more than $2.5 billion year to date, and the increase in FY26 guidance.

• Valuation MethodP/E and PEG Valuation

  P/E-based target price using forward earnings per share

  Bernstein derives its $32 target price by applying a 9 times P/E multiple to FY27 earnings per share of $3.54. The 9 times valuation multiple remains unchanged and is consistent with the average level over the past 10 years.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• HP Inc (HPQ)

  Personal Systems price increases, product-mix upgrades and improved cash flow drove higher earnings forecasts and a higher target price, but input-cost pass-through and declining Printing revenue continue to constrain near-term margin performance.

  Strengths

  Disciplined execution of PC pricing; improved mix of premium and commercial PCs, AI PCs and workstations; record FQ3 revenue and strong free cash flow.

  Weaknesses

  Personal Systems unit sales declined 16% year over year, and its operating margin fell to 4.6%; Printing revenue declined 2% year over year and 4% in constant currency.

  Comparison

  The 9 times FY27 P/E multiple is consistent with HP's average level over the past 10 years.

  Risks

  HP Plus, AI PCs and a PC industry recovery could provide upside; highly leveraged or synergy-deficient acquisitions could impair capital returns, dilute earnings and reduce ROIC.

Key data

• FQ3 Adjusted Earnings per Share$0.83Above the original guidance of $0.61 to $0.71 and the consensus estimate of $0.63
• Tariff-Refund Benefit$0.11 per share in FQ3; estimated $0.19 per share in FY26Underlying FQ3 earnings per share were approximately $0.72 after excluding the refund
• FQ3 Total Revenue$15.7 billionA record, up 13% year over year
• Personal Systems Revenue$11.8 billionA record, up 18% year over year, while unit sales declined 16% year over year
• Personal Systems Operating Margin4.6%Below HP's long-term range; management expects it to bottom in FQ4
• Change in Printing RevenueDown 2% year over yearDown 4% in constant currency
• Ink-Tank Printer Unit Growth42%Partially offset declines in printing supplies and hardware unit sales
• Printing Operating Margin18.1%Includes tariff refunds; excluding them, the margin was at the low end of the long-term range of 16% to 19%
• FY26 Non-GAAP Earnings-per-Share Guidance$3.19 to $3.29Previous guidance was $2.90 to $3.10; approximately $3.00 to $3.10 excluding estimated tariff refunds
• FY26 Free-Cash-Flow Guidance$3.0 billion to $3.2 billionPrevious guidance was $2.8 billion to $3.0 billion
• Free-Cash-Flow ProgressApproximately $1.6 billion in FQ3; more than $2.5 billion year to dateManagement said the improvement primarily reflected Personal Systems and working-capital management
• Bernstein Earnings-per-Share Forecasts$3.29 for FY26; $3.54 for FY27Raised by 10% and 16%, respectively, from the previous forecasts
• Target Price and Valuation$32; 9 times FY27 earningsPrevious target price was $27; the valuation multiple is unchanged and consistent with the 10-year average
• Closing Price and Upside to Target$30.52; 5%As of August 26, 2026
• 52-Week Price Range$32.19 to $17.56Market data presented in the report
• Dividend Yield3.9%Market data presented in the report

Impact & implications

The report believes that PC price increases, a more premium and commercial product mix, and improved cash flow support higher FY26 and FY27 earnings forecasts, but near-term margins remain pressured as higher-cost memory and storage inventory flows through the income statement. Whether FQ4 becomes the Personal Systems margin trough as management expects, and whether contract repricing and structural cost reductions can drive a recovery in FY27, are key to sustaining the operating improvement. Given the limited upside from the current price to the target price, Bernstein maintains its Market-Perform rating.

Risks

• One upside risk is that HP Plus's transition to a new printing monetization model could curb business declines and improve structural growth.
• Adoption of AI PCs or a broader recovery in the PC industry could generate replacement demand, incremental unit sales and higher average selling prices, creating an inflection point in HP's growth.
• A downside risk is that HP could pursue value-destructive acquisitions; if a transaction requires substantial leverage or cash expenditure, capital returns could decline.
• Acquisitions lacking synergies could also dilute earnings and reduce return on invested capital.

What to watch

• Monitor whether the Personal Systems operating margin bottoms in FQ4 as management expects.
• Track contributions from price increases on long-term customer contracts and other structural cost-reduction measures after FQ4.
• Watch the magnitude of further increases in input costs such as memory and storage, and whether the pace slows in FY27.
• Monitor whether the Personal Systems margin can return toward HP's long-term range in FY27.
• Track the contributions of further PC price increases, the premium-product mix and AI PC demand to revenue and average selling prices.
• Watch whether printing supplies and hardware unit sales, subscriptions, industrial printing and growth in ink-tank printers can stabilize the Printing business.