HP Q2 Earnings Beat Expectations, Target Price Raised to $27

Overview

Bernstein published its Q2 earnings review report for HP, noting both revenue and EPS exceeded market expectations, primarily driven by strong PC performance. Based on improved earnings and expectations of easing cost pressures, the report raised the target price from $21 to $27 while maintaining a Market-Perform rating.

Core views

HP delivered strong Q2 performance: revenue reached $1.44 billion (up 9% YoY), with non-GAAP EPS of $0.86, exceeding guidance by $0.10 and market expectations. PC segment outperformed significantly: Personal Systems revenue grew 13.2% with operating margin of 5.2%. Growth drivers included: 1) Price increases offsetting memory cost rises; 2) Higher commercial PC mix; 3) Commercial AI PC share increasing from 35% to 44%. Cost pressure analysis: Q4 will see margin trough primarily due to CPU repricing. Cost pressures follow sequential transmission: first memory, then storage, finally CPU.

Analysis framework

The report uses sum-of-parts valuation, setting target price at 9x FY27 EPS (previously 7x), consistent with 10-year average. Key analysis focuses include: 1) PC segment volume/price analysis, especially AI PC penetration impact on ASP 2) Timing mechanism of cost pressure transmission 3) Management guidance credibility assessment

Methodology notes

• Valuation MethodPE/PEG valuation

  Forward PE valuation approach

  Assesses valuation rationality by comparing current PE to historical average (10-year), suitable for mature companies with stable profits

Asset mapping & comparison

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

• HPQ.US

  Direct beneficiary of PC segment improvement and AI PC trend

  Strengths

  Strong commercial PC market position, comprehensive AI PC product line

  Weaknesses

  Component cost pressures still in transmission process

  Risks

  Value-destructive M&A could hurt capital returns

Key data

• Q2 Revenue$1.44 billionUp 9% YoY, beat expectations
• Non-GAAP EPS$0.86Exceeded guidance by $0.10
• PC Segment Revenue Growth13.2%Significantly exceeded expectations
• AI PC Share44%35% last quarter
• New Target Price$27Previously $21

Impact & implications

The report acknowledges HP's near-term earnings improvement but notes ongoing component cost pressures long-term. AI PC penetration and higher commercial mix are structural positives, but Q4 margin trough performance warrants monitoring.

Risks

• Persistent component cost increases squeezing margins
• Value-destructive M&A risk
• AI PC demand falling short of expectations

What to watch

• Q4 margin trough performance
• AI PC penetration changes
• Memory and storage price trends