After A 'Breakthrough' Quarter, Did HP Just Become A Growth Company?

After the 2015 split of HP Inc (NYSE: HPQ) and Hewlett Packard Enterprise Co (NYSE: HPE), HP is now “the faster growing sibling,” according to UBS.

The company posted its first simultaneous growth in the PC and printer sectors since the second quarter of 2010, UBS analyst Steven Milunovich said in a Thursday note. HP reported second-quarter results after Wednesday's close.

“Stabilization of the core, free cash flow likely at the top of the $2.3-2.6 billion range and eventual growth in A3 copying and 3D printing keep us optimistic,” Milunovich said.

UBS maintained a Buy on HP and raised its price target from $20 to $22.

‘A Shot At Sustained Revenue Growth’

HP’s second-quarter revenue of $12.4 billion was a 7 percent year-over-year increase, outpacing UBS’ $12 billion estimate.

At the time of the HP and Hewlett Packard split, the latter was viewed as “the growth vehicle” and HP was viewed as “the cash flow company,” the analyst said.

“We recently argued that HP has a shot at sustained revenue growth even with a declining core printer business,” Milunovich said.

The company has rebalanced its product line, with more premium offerings, and declines in the PC market are leveling out, according to UBS. The firm is projecting flat PC revenue for HP in 2017, an estimate that Milunovich said “could prove conservative.”

It could take three to five years for HP to succeed in the copier segment and with the Jet Fusion 3D printer, the analyst said.

“We believe HP’s A3 products offer a compelling value proposition and will gain traction, but the current distribution channel will take time to penetrate.”

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