2023-04-17 09:12:20 ET
Investment firm J.P. Morgan changed its rating on HP ( NYSE: HPQ ) and Dell Technologies ( NYSE: DELL ) on Monday, with the firm favoring HP ahead of first-quarter results.
Analyst Samik Chatterjee raised his rating on HP ( HPQ ) to overweight while lowering his rating on Dell ( DELL ) to neutral, noting that HP's favorable position in PCs and recent cost cuts should help the company's financials.
"...[W]hile we expect the recovery in the PC end-market to benefit both HPQ and DELL, we are choosing to express our preference for share price upsides through the recovery through a rating change with a time horizon focused on the recovery which should benefit HPQ more than DELL in our estimates on account of an earlier recovery in PCs as an end-market relative to demand for IT infrastructure products from Enterprises (for DELL’s ISG group)," Chatterjee wrote in an investor note.
HP ( HPQ ) shares rose around 2.5% , while Dell ( DELL ) dipped nearly 3% following the ratings changes.
Chatterjee added that there is likely to be a second-half recovery in PC sales, perhaps as much as 21% half-over-half, which should help both HP ( HPQ ) and Dell ( DELL ) see a "robust ramp in revenue and an even stronger ramp in profits," but the preference is for HP.
The analyst raised his revenue estimates for HP to $55.9B and $57.2B in 2023 and 2024, respectively, up from previous views of $54.8B and $56B, respectively. He also expects to see operating margin upside after the company's recent layoffs, due in part to "resilient" revenue and margins from the company's print segment.
"We expect the combination of structural margin improvement in the Print segment on account of several initiatives undertaken by the company to offset some of the margin moderation in the coming quarters with easing supply, even though margin moderation should be more muted than previously feared on better supply-demand balance," Chatterjee explained.
According to research firm IDC, HP ( HPQ ) had the best performance of any of the top PC makers in the first-quarter .
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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HP rises, Dell falls as JP Morgan changes ratings on pair heading into Q1