Author: Joe Martin, Date: 2016-05-13
HP’s Current Situation
Although HP has been a leader in almost all of the major information technology services and hardware systems for decades, it has recently had to overcome negative assumptions about its forward growth for many reasons. For one, industry competition has increased to the point of reducing HP’s market share slightly over the past few years. Secondly, the perception of HP as the undisputed market leader in hardware is being challenged by a number of these competitors. HP maintains its dominance in certain segments such as printers and printer accessories, but there is definitely room for improvement in other areas.
Despite all of these challenges, many market experts are reporting being bullish on the future of HP, with some even giving it an “outperform” rating. Key among these analysts is Oppenheimer, who recently gave HP a $21 target price, which would imply a rise in the current price of HP of more than 20 percent.
Why Do Market Analysts Think HP’s Future is Bright?
First on the list is HP’s ability to integrate the research and development efforts of the company with its go-to market functionality within the Enterprise Group. The challenges of competitors eating away at the market share of HP can be effectively countered by the incremental growth that this integration can engender. On top of this, HP has many other opportunities to grow through the synthesis of other divisions, including software and services.
HP has also shown a completely renewed commitment to innovation in the field of IT hardware, showcasing a brand new portfolio in recent investor calls. The company also has plenty of cash to invest in these new efforts, and recurring revenue locks in a level of cash flow that will ensure that new projects get funded without the need to take away funding from core functions of the company.
HP Reinvesting in R&D
Today’s IT market is all about innovation, and HP plans to be at the forefront of the market. They are putting real cash behind these efforts, raising their R&D expenses 10 percent year over year since 2013. The company is also reducing overhead and consolidating redundant company functions. All of this new activity has caused market analysts to estimate a real incremental increase in earnings per share of about $0.08.
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