A group of analysts, led by Erik Woodring, changed their ratings on HP (HPQ) and Dell (DELL) to equal weight and overweight, respectively, noting that the cyclical PC tailwinds are pointing in the company’s respective favors.
HP: For HP (HPQ), the group also raised the per-share price target to $31 from $28, noting the stock is likely to see multiple expansion, but outperformance may be limited by a second-half free cash flow ramp, slowing capital returns and a “more challenged” printing business.
“[W]e believe that the PC market is forming a bottom in 1Q23, which is an important point at which PC stocks historically begin to outperform the S&P 500,” the analysts wrote in an investor note. “At a micro level, this bottoming is a clear catalyst for HPQ, the 2nd largest global PC OEM, as well.”
Research firm IDC recently noted that HP (HPQ) fared the best in the first-quarter amongst PC makers, as it saw a 24% year-over-year decline, besting the likes of Dell (DELL), Apple (AAPL) and others.
The analysts also noted that there is a “statistically significant positive relationship” between the relative performance of HP’s (HPQ) stock and the trajectory of its year-over-year PC shipment growth. Additionally, there is a 0.91 correlation to the company’s next 12 months earnings per share and its stock price.
Dell: The group also boosted its per-share price target to $55 from $45, noting its attractive valuation and the fact it is on a path “towards accelerating shareholder returns.”
“We believe the PC market is forming a bottom, and we want to own DELL for the cyclical PC market rebound,” the analysts wrote in an investor note.
In addition, Dell’s (DELL) stock is “tightly correlated” to its Client Solutions Group revenue growth and there is a “statistically significant relationship” between its stock performance and the trajectory of its year-over-year PC shipment growth.
The analysts added that even though the hardware spending environment is still “weak,” it is looking like the cycle is coming to an end and there is a “positively-skewed setup” for Dell (DELL) over the next 12 months.
Analysts are universally cautious on HP (HPQ). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a HOLD. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates HPQ a HOLD.
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