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A Bernstein analyst lowered the price target of HP Inc. (NYSE:HPQ) to $30 from $40, telling investors in a note Tuesday that printer supplies are the key driver of the company’s financials.
The analyst, who has a Market Perform rating on the stock, added, “they historically generated nearly 100% of total company operating profits – less so this year, given PC strong growth and profitability.”
However, the Bernstein note stated HP’s printer supplies revenues have declined at a CAGR of 3% over the last 10 years, and alarmingly, supplies declined by -9% in the third quarter, with HP guiding that supplies will be down double digits “over the next few quarters.”
While HP attributed the weakness to cyclical factors, the analyst said they believe the economy and businesses are still generally faring well.
“We worry that HP’s printing/supplies business is also being impacted by incremental structural headwinds (fewer office workers; ESG; clone/reman) and believe supplies will decline at a more accelerated rate (i.e., mid-single digits) going forward. All else equal, a MSD decline in supplies is a -$0.18 annual headwind to HP’s EPS and a 100 bps headwind to total company revenue growth,” wrote the analyst.
HP shares are down over 2% at the time of writing.
