Don't Bet On HP Inc Setting A New High HP Inc (NYSE: HPQ) shares popped on the Q2 earnings report and are tickling a new all-time high but we aren't betting on a breakout. While the news is good...

HP Inc Pops On Results But Gains Are Capped

HP Inc (NYSE: HPQ) shares popped on the Q2 earnings report and are tickling a new all-time high but we aren't betting on a breakout. While the news is good and the outlook favorable there are some underlying conditions in the market that we see capping gains, at least over the summer. The biggest is the institutional activity. The institutions have been net sellers for the last few quarters and their activity ramped into Q2. The net of selling over the past year is worth nearly $2 billion in shares or roughly 4.8% of the current market cap so no small amount. Because the institutions own nearly 82% of the stock they represent a significant headwind for share prices should this trend continue.

The other factor is the analysts. The 12 analysts rating the stock have it pegged at Hold and the sentiment is not firming. Although the post-release activity includes 2 price target upgrades from 2 analysts the consensus target is flat over the past 30 and 90-day periods and about 8% below the current price action. The takeaway from the analyst chatter is that things look OK now but there is a risk of market share loss to Dell following its strong quarter and the possibility of margin contraction.

HP Inc Beats And Raises On Demand Strength

HP Inc had a good quarter with growth in key segments offsetting weakness in others. The company pulled in a net $16.5 billion in revenue for a gain of 3.8% over last year which beat the Marketbeat.com consensus by 190 basis points. The core Personal Systems segment grew by 9% and was offset by a 7% contraction in printing that we associate with going back to work and kids going back to school. People still need computers but there is far less need for printers, ink, and related items.

The company was able to control inflationary pressures, which is good news, and lost only 30 basis points of adjusted operating margin versus last year. The bad news is the margin decline offset the earnings strength and left operating income flat versus last year, the good news is that margin was better than expected and aided by share repurchases which led to adjusted EPS growth of 16% YOY. The adjusted EPS also beat the consensus and led to an increase to the guidance but it's not enough to get shares up to a higher price level in our opinion. The company raised the low end of its guidance range for both Q2 and full-year 2022 earnings but the guidance still brackets the consensus and there is ample risk in the economic forecast.

HP Inc Returns $1.3 Billion To Shareholders

HP Inc is a solid dividend payer despite its ho-hum status as a tech stock. The company pays more than 2.5% with shares trading near $40 and there is a positive outlook for distribution growth. The company has been increasing the dividend for the last 11 consecutive years with a 5-year CAGR above 11.5% and is paying out less than 25% of its earnings. Based on the earnings and the balance sheet, we think this company could keep increasing its dividend for the next few years at least.

The Technical Outlook: HP Inc Is At A Top

Shares of HP Inc popped in the wake of the earnings report and could go higher but, at this level, they are more than 200% above the pandemic bottom and tickling resistance at the current all-time high. In our view, with institutions selling and the analysts no help either, this will become a ceiling in price action that caps gains for the next few weeks if not months.