DELL - HP drops as Wells Fargo downgrades on 'increasing scenario' of underperformance into 2023

HP ( NYSE: HPQ ) dropped on Friday as investment firm Wells Fargo downgraded the tech giant, noting there is an "increasing scenario" where its shares underperform on a relative basis the rest of this year and into 2023, due to weakening PC demand.

Analyst Aaron Rakers lowered his rating on HP ( HPQ ) shares to underweight from equal weight and cut his price target to $30 from $35. Rakers noted that while HP ( HPQ ) has strong free cash flow and is executing well, a "deteriorating PC demand and macro sensitivity in print could result in material downward estimate revisions."

As such, Rakers lowered his 2023, 2023 and 2024 estimates. He now sees full-year revenue for the three years at $63.4B, $60.4B and $62.2B, down from $65.9B, $63.8B and $65.2B.

Full-year earnings per share estimates were also cut to $4.20, $4.37 and $5.19, down from $4.30, $4.61 and $5.31.

The analyst also noted that the pace of HP's ( HPQ ) share buyback program could slow as its planned $3.3B acquisition of Plantronics ( POLY ) gets closer to being final.

HP ( HPQ ) shares fell 4% to $33.82 in premarket trading.

In conjunction, Rakers also cut estimates for Dell Technologies ( DELL ), but noted that Dell is seen as a "more defensible and self-help story" and is likely to fare better than HP ( HPQ ) in a slowing environment, given its supply chain management expertise, higher exposure to the commercial PC market and capital return program.

Pure Storage ( PSTG ) is also viewed favorably, given its position in the all-flash enterprise storage market.

Last month, the latest report from IDC showed that worldwide PC shipments declined 15.3% year-over-year to 71.3M units as of the second-quarter, with HP ( HPQ ) hit the hardest .

Analysts are overwhelmingly cautious on HP ( HPQ ). It had an average rating of HOLD from Seeking Alpha authors , while Wall Street analysts rate it a HOLD . Seeking Alpha's quant system, which consistently beats the market, also rates HPQ a HOLD .

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