Hewlett-Packard Earnings Preview: Big Quarter But Flat Outlook, Says Citi

Hewlett-Packard (HPQ) reports Q1 earnings on Thursday and Citi is calling “another clean beat.” Citi is confident of growth across all segments and a rebound in printer unit growth, and sees up to $1 billion in revenue upside.

We are very comfortable with our Street-high revenue and EPS estimates of $28.2B and $0.88 and even see potential for several hundred million in additional revenue and $0.02-0.03 in additional EPS… Printer unit growth should rebound several percentage pts from last quarter’s 1%. We see potential for up to $1B of revenue upside vs. guidance.

Citi is also predicting a normal seasonal expansion in gross margin due to a shift in mix away from inkjet hardware. Guidance, however, will likely be only in-line due to stiff macro headwinds.

We expect a normal seasonal 60-90bp qoq rise in gross margin. Loss-generating inkjet hardware shipments declined in line with normal seasonality (contrary to guidance) and component pricing, especially DRAM, was generally favourable throughout the quarter.

Citi reiterates Buy rating and $64 price target.

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