HP Earnings: PC Recovery Starting to Take Shape; Raising Our Fair Value Estimate to $31

No-moat HP reported decent fiscal second-quarter earnings with a recovery in PC-related revenue becoming more established even as printing remains under some pressure. As we adjust our forecasts and transfer coverage to a new analyst, we are increasing our fair value to $31 from $27, largely driven by slightly less punitive margin assumptions, even as our overall growth outlook remains largely unchanged. We assume that HP will only see mild margin degradation in the future, even as the PCs and printer markets remain intensely competitive and as the higher-margin printer business slowly declines. We expect cost controls to mostly offset pricing and margin pressure. We also expect minimal revenue growth over the next 5 years, projecting a compound annual growth rate of 1%. Updated guidance was mostly in line with previous ranges with the full-year EPS outlook narrowed to a range of $3.30-$3.60 from a previous range of $3.25-$3.65. With no surprises in results or guidance, we view shares as roughly fairly valued and remain skeptical of any dramatic changes in PC demand driven by the introduction of artificial intelligence PCs.