HP shares rise in premarket trading after 2Q earnings beat estimates, outlook raised

Wednesday, May 19, 2010

HP shares rise on 2Q results, bullish 2010 outlook

PHILADELPHIA — Shares of Hewlett-Packard Co. rose in premarket trading Wednesday after the computer and printer company reported fiscal second-quarter earnings that beat Wall Street’s estimates and raised its outlook for year.

HP’s bullish report signals a recovery in technology spending, but centered around hardware. Services did see a nice rebound but software revenue disappointed in the quarter.

Europe in particular was a highlight for HP, as it saw demand improve enough for the company to expect seasonal trends to continue this year, said Brean Murray analyst Ananda Baruah. A recovery in Europe would bode well because HP has been adversely affected by a weak euro, which it has partly offset by currency hedging. However, a debt crisis in Greece that threatens to spread to other eurozone countries continues to weigh on the euro and austerity measures imposed by some of those nations pose questions about the strength of the European recovery.

Kaufman Bros. analyst Shaw Wu affirmed his “Buy” rating on HP shares, noting that hardware gives buyers an immediate payback, such as higher productivity and power savings. Most of the HP’s growth in the quarter came from servers, computers and printers, he noted.

Wu raised his fiscal 2010 revenue forecast to $124 billion from $122 billion and earnings outlook to $4.50 per share from $4.37.

He also bumped his target price up $1 to $61, saying investors have “unfairly” punished HP because most underestimate and misunderstand its “strong fundamentals and unique position as one of the world’s broadest and most geographically diverse providers of technology.”

Baird analyst Jayson Noland also kept his “Outperform” rating on HP shares and $62 price target.

In the quarter, HP earned $2.2 billion, or 91 cents per share, compared with $1.7 billion, or 71 cents per share, in the same period last year. Excluding special items, it earned $1.09 per share, or 4 cents per share higher than what analysts expected as polled by Thomson Reuters.

Revenue rose to $30.8 billion, also beating Wall Street’s average estimate. That’s up from revenue of $27.4 billion in the prior-year period.

For 2010, HP raised its revenue forecast to a range of $123.7 billion to $124.9 billion, which topped analysts’ $123 billion estimate. It now expects profit of $4.45 to $4.50 per share, excluding special items, compared with analysts’ consensus forecast of $4.45 per share.

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