Hewlett-Packard pushing lower

The technology company will announce its third-quarter results on 20 July, and both revenue and profits are on the decline.

Hewlett-Packard logo
Source: Bloomberg

Hewlett-Packard is edging closer to separating in order to combat the changing business climate. The rise of cloud computing and mobile devices has eaten into Hewlett-Packard’s business, and to better suit the needs of its clients the company will split in two. One business will focus on PC’s and printers and the other business will specialise in providing technology to corporations.

The company has undergone a restructuring programme since 2012, which has seen the headcount trimmed by 48,000. The planned break-up of the company is expected to save the two businesses a total of $1 billion over the next three years.

The firm plans to split at the end of 2015, and until then we are not going to see any acquisitions, although we could see room for expansion once the two distinct operations are underway. As the overhaul of the company is so big, dealers are happy to sit on the sidelines until the new structure is in place, and make a decision on the stock once the new format has been established.

When Hewlett-Packard reveals its results, the market is expecting revenue of $25.58 billion and adjusted net income of $1.56 billion, which compares with the second-quarter sales and adjusted net income of $25.45 billion and $1.59 billion. The company will report its full-year results in February 2016, and dealers are anticipating revenue of $104 billion, and adjusted net income of $6.6 billion. These forecasts equate to a 6.3% drop in revenue and a 7% decline in adjusted net income.

Investment banks are bullish on Hewett-Packard, and out of the 36 ratings, 20 are buys, 15 are holds, and one is a sell. The average target price is $39.86 which is 27% above the current price. Equity analyst are also bullish on Microsoft, and out of the 42 ratings, 22 are buys, 13 are holds, and seven are holds. The average target price is $50.28, which is 7.7% above the current price.

The number of short positions on Hewlett-Packard has increased by 31% since the second-quarter results were posted, and the short interest on the stock is at its highest level since March 2016.

The company’s share price has been trading lower since December 2014, and the support in the $27 region is the initial target, with the next level of support below that at $19.50. Any moves higher will run into resistance at $30 and $32 respectively.

Hewlett-Packard is available for extended hours trading.

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