Pricing, mix improvement, and tariff refunds drove HPQ's F3Q beat, but persistent margin pressure supports the Sell view

Overview

This report reviews HP Inc.'s F3Q26 results and assesses the revenue quality of its Personal Systems and Print businesses, the contribution from tariff refunds, cost pressures, and the future margin trajectory. The earnings beat prompted Goldman Sachs to raise its earnings estimates and price target, but the report argues that the outperformance included significant refund benefits and that cost and competitive pressures in F2027 remain insufficiently resolved. It therefore maintains its Sell rating.

Core views

HPQ's F3Q26 non-GAAP EPS was $0.83, or $0.72 excluding tariff refunds, both above Goldman Sachs and FactSet consensus expectations of $0.69 and above the company's guidance range of $0.61-$0.71. Revenue was $15,677mn, above Goldman Sachs' $14.8bn estimate and consensus expectations of $14.4bn. Non-GAAP EBIT was $1,021mn, exceeding Goldman Sachs' $884mn estimate and consensus expectations of $860mn. Although gross profit of $2,945mn exceeded Goldman Sachs and consensus expectations of $2,854mn and $2,786mn, respectively, the 18.8% gross margin remained below the corresponding estimates of 19.3% and 19.4%, indicating that the revenue and absolute profit beats did not eliminate underlying margin pressure. Personal Systems was the primary operating driver of the revenue beat. Revenue for the segment was $11,767mn, above Goldman Sachs' estimate of $10,998mn and up 18% year over year despite a 16% year-over-year decline in units. The report attributes this divergence between volume and revenue to pricing, an improved product mix, a shift toward higher-ASP regions such as the Americas, and stronger attach sales of peripherals and services such as WXP. Market share in premium PCs and workstations increased by 2.6 and 1.8 percentage points, respectively. By channel, Consumer PC revenue increased 10% year over year, below Goldman Sachs' 17% estimate, while Commercial PC revenue increased 22%, significantly above the 8% estimate. The quarter's structural strength therefore came primarily from commercial and higher-value products rather than a broad improvement in end demand. Personal Systems profitability remains constrained by rising input costs. Segment EBIT was $537mn, with a margin of 4.6%, broadly in line with Goldman Sachs' estimates of $506mn and 4.6%, as well as the company's previous guidance for a margin below 5%. The company continues to expect the industry's total PC addressable market to decline by a high-teens percentage year over year in C2H26, but it expects Personal Systems revenue to continue growing year over year in F4Q26, driven by pricing, share gains in premium categories, and attach sales of higher-margin peripherals and services. Sequential performance is expected to be below the typical low-single-digit seasonal increase, while margin is expected to decline further and bottom in F4Q. The primary near-term mitigation measures are pricing and supply assurance. The company subsequently plans to use non-pricing and non-supply measures, including repricing long-term contracts and redesigning products, to recover margins sequentially during F2027 and return them to the long-term 5%-7% range. Goldman Sachs remains uncertain whether product mix, pricing, and additional cost reductions can fully offset industry pressure amid substantial increases in input costs and intensifying competition in the PC market. Print revenue was $3,912mn, above Goldman Sachs' estimate of $3,829mn, but underlying demand remained weak: Consumer Printing, Commercial Printing, and Supplies revenue declined 2%, 1%, and 3% year over year, respectively. Print EBIT was $709mn, with a margin of 18.1%, significantly above Goldman Sachs' estimates of $613mn and 16.0%, primarily due to tariff refunds. HPQ received tariff refund benefits of $0.11 per share this quarter. Goldman Sachs estimates that this item increased consolidated operating margin by approximately 75 basis points, including a contribution of approximately 2 percentage points to Print and approximately 25 basis points to Personal Systems. The company expects more than $0.08 per share of additional refund benefits in future quarters, including an expected $0.08 in F4Q, primarily benefiting Print. Whether F2027 receives additional benefits will depend on the timing of refunds. For F4Q26, the company provided guidance for GAAP EPS of $0.74-$0.84 and non-GAAP EPS of $0.69-$0.79, above the then-consensus expectations of $0.62 and $0.67, respectively. Both guidance ranges include an expected tariff refund benefit of $0.08 per share. Print revenue is expected to follow normal seasonality, but incremental hardware placements and near-term input costs will pressure margins. Excluding refunds, Print margin is expected to be in the lower half of the long-term 16%-19% target range, near the low end. The company did not provide overall F2027 guidance, stating only that Personal Systems margin would recover sequentially while Print margin was expected to remain within the long-term 16%-19% range. HPQ also raised its F2026 guidance: GAAP EPS increased from $2.15-$2.45 to $2.52-$2.62, non-GAAP EPS increased from $2.90-$3.10 to $3.19-$3.29, and free cash flow increased from $2.8-$3.0bn to $3.0-$3.2bn. Both GAAP and non-GAAP EPS include an expected tariff refund benefit of $0.19 per share. Accordingly, Goldman Sachs raised its F2026 non-GAAP net income estimate by 8%, primarily reflecting refunds, and raised its F2027 and F2028 net income estimates by 1% each, reflecting adjustments to other income and expense and other corporate items. On valuation, Goldman Sachs maintained its Sell rating and raised its 12-month price target from $21 to $22, continuing to apply an unchanged 6.5x multiple to NTM+1Y EPS. The price target increase primarily followed earnings estimate revisions rather than multiple expansion. The report's central view is that recent performance improvement is supported by pricing, mix, and share gains but is also significantly dependent on tariff refunds. Against a backdrop of contracting PC demand, rising input costs, and intensifying competition, medium-term margin recovery still lacks sufficient certainty.

Analysis framework

Goldman Sachs first compares F3Q26 revenue, EPS, gross profit, and EBIT with its own estimates, FactSet consensus expectations, and company guidance on a line-by-line basis. It then breaks down revenue, units, pricing, product mix, market share, and margins across Personal Systems and Print to identify the sources of the beat. The report further separates tariff refunds from EPS and margins to distinguish one-time or timing-related benefits from underlying operating performance, then adjusts its earnings estimates based on F4Q26 guidance, the raised full-year F2026 guidance, and the F2027 margin trajectory. Finally, it applies a 6.5x multiple to NTM+1Y EPS to translate the estimate revisions into a 12-month price target.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of Personal Systems revenue into units, pricing, and mix

  The report analyzes the 18% year-over-year increase in Personal Systems revenue alongside the 16% decline in units, thereby identifying the contributions from pricing, higher-ASP regions, improved product mix, and services attach to revenue growth.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Analysis of EPS and margins excluding tariff refunds

  The report separately presents EPS including and excluding tariff refunds and estimates the refunds' contributions to consolidated and segment margins to determine the respective shares of underlying operating improvement and refund benefits in the earnings beat.

• Valuation MethodPE/PEG valuation

  Setting the price target using 6.5x NTM+1Y EPS

  Goldman Sachs uses the EPS estimate for the year following the next twelve months as the valuation basis and maintains an unchanged P/E multiple of 6.5x. The increase in the price target from $21 to $22 primarily reflects earnings estimate revisions rather than a higher valuation multiple.

Asset mapping & comparison

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

• HP Inc. (HPQ.US)

  F3Q26 revenue and EPS exceeded expectations, and F2026 guidance and the price target were raised, but Goldman Sachs maintained its Sell rating.

  Strengths

  Pricing power, share gains in premium PCs and workstations, Commercial PC growth, peripherals and services attach, and support for near-term profits from tariff refunds.

  Weaknesses

  Declining PC units, weak end demand for Print, gross margin below expectations, and Personal Systems margin expected to decline further in F4Q26.

  Comparison

  F3Q26 revenue, EPS, gross profit, and EBIT all exceeded Goldman Sachs and consensus forecasts, but Personal Systems margin merely met expectations, while overall gross margin fell below expectations.

  Risks

  Continued increases in input costs, intensifying competition in the PC market, and the possibility that pricing, mix improvements, and other mitigation measures may be insufficient to drive the planned F2027 margin recovery.

Key data

• F3Q26 Non-GAAP EPS$0.83$0.72 excluding tariff refunds; Goldman Sachs and FactSet expectations were both $0.69, while company guidance was $0.61-$0.71
• F3Q26 Revenue$15,677mnAbove Goldman Sachs' $14.8bn estimate and consensus expectations of $14.4bn
• Personal Systems Revenue$11,767mnUp 18% year over year and above Goldman Sachs' estimate of $10,998mn; units declined 16% year over year
• Personal Systems Market SharePremium PCs +2.6 percentage points; Workstations +1.8 percentage pointsImportant support from pricing, product mix, and higher-margin attach sales
• Print Revenue$3,912mnAbove Goldman Sachs' estimate of $3,829mn; Consumer Printing, Commercial Printing, and Supplies declined 2%, 1%, and 3% year over year, respectively
• Gross Profit and Gross Margin$2,945mn; 18.8%Gross profit exceeded expectations, but gross margin was below Goldman Sachs' 19.3% estimate and consensus expectations of 19.4%
• Non-GAAP EBIT$1,021mnAbove Goldman Sachs' $884mn estimate and consensus expectations of $860mn
• Personal Systems EBIT Margin4.6%In line with Goldman Sachs' forecast and expected to bottom in F4Q26
• Print EBIT Margin18.1%Above Goldman Sachs' estimate of 16.0%, primarily driven by tariff refunds
• Tariff Refund Benefit This Quarter$0.11/shareEstimated to have increased consolidated operating margin by approximately 75 basis points
• F4Q26 EPS GuidanceGAAP $0.74-$0.84; non-GAAP $0.69-$0.79Both include an expected tariff refund benefit of $0.08/share
• F2026 EPS GuidanceGAAP $2.52-$2.62; non-GAAP $3.19-$3.29Previously $2.15-$2.45 and $2.90-$3.10, respectively; both include a refund benefit of $0.19/share
• F2026 Free Cash Flow Guidance$3.0-$3.2bnPreviously $2.8-$3.0bn
• Earnings Estimate RevisionsF2026 +8%; F2027/F2028 +1% eachF2026 primarily reflects tariff refunds, while the following two years reflect other income and expense and other corporate items
• Price Target and Valuation$22; 6.5x NTM+1Y EPSThe previous price target was $21, while the valuation multiple remains unchanged

Impact & implications

The report believes HPQ has demonstrated that pricing, share gains in premium categories, and services attach can support revenue when PC units decline, while tariff refunds have also improved near-term profit and full-year cash flow expectations. However, gross margin remains below expectations, Personal Systems margin has yet to bottom, and Print margin is also being affected by hardware placements and input costs. Because the price target increase stems from earnings estimates rather than a valuation re-rating, Goldman Sachs has not changed its cautious view of HPQ's medium-term return potential.

Risks

• Better-than-expected industry PC demand could represent an upside risk to Goldman Sachs' Sell thesis.
• A less severe impact from rising input costs on margins could result in earnings exceeding the report's forecasts.
• If HPQ gains greater market share in higher-margin categories such as gaming PCs and peripherals, Personal Systems performance could improve.
• A recovery in industry demand across office and consumer markets could improve revenue in the PC and Print businesses.
• A faster shift in the Print mix toward consumer subscriptions such as Big Tank, Instant Ink, Instant Paper, and HP+, as well as industrial printing growth opportunities, could improve profitability.