Q2 Earnings Preview: Small "Beat" Expected at Hewlett-Packard (HPQ)

Shares of Hewlett-Packard (NYSE: HPQ) are trading lower today, ahead of the company's second quarter earning report, slated for after the market closes on Tuesday, May 18th, 2010. Shares of the company are down 0.44% to $47.22.

HPQ is expected to report EPS of $1.05 on revs of $29.81 billion. For Q110, HPQ posted an EPS of $1.10, ex-items, and revs of $31.2 billion, both topping Street views. For Q209, the company posted an in-line EPS of $0.86 and revs of $27.35 billion, which was just shy of views.

Shares of HPQ have gained nicely through the quarter. From a close of $47.76 on Feb. 1, 2010, shares moved up 8.8% to close at $51.97 on April 30, 2010. YTD, the stock is down about 10.7% from an open of $52.57 on January 4, 2010.

HPQ is currently trading for a forward P/E of 10.5x FY10 EPS estimates. By comparison, Dell, Inc. (Nasdaq: DELL) is going for 12.3x and IBM (NYSE: IBM) is at 11.6x.

Data from Bloomberg shows that 29 analysts have a Buy rating on the stock, 8 have a Hold, and 0 suggest to Sell. The analysts price target average is $60.93, with a high of $65, and a low of $52.

News Through the Quarter
The biggest news for HPQ was their acquisition of Palm for $1.2 billion. Palm was long rumored to be a prime acquisition target of many companies, and many believe that this acquisition will be nothing but beneficial to HPQ as it gives the company immediate exposure to the ever-burgeoning mobile phone market.

Analyst Ratings through the Quarter
In February, Collins Stewart initiated coverage with a Buy, with a price target of $60. The firm notes that they expect corporate budgets to bulge by 5% - 7% for FY10, and HPQ will be a recipient of that increase. Click Here for more color on the rating.

In April, Brigantine Advisors initiates coverage with a Buy rating, and price target of $59. The firm also says that HPQ is a well-diversified company that will appreciate as IT budgets come back.

Standpoint Research downgrades from Buy to Hold. Standpoint believes that the firm is not fairly valued at 1.1X sales and 13X EPS. Click Here for more color.

Needham & Company reiterates a 'Strong Buy' rating, with a price target of $60. They allude to HPQ's acquisition of Palm as a plus for the company.

Summary
Collins Stewart is bullish into Q210 earnings for HPQ. The firm reiterates their Buy rating and $65 price target. CS notes that HPQ derives 65% of its revs from hardware sales, and corporations are in a hardware refresh cycle. They note that this cycle is different from 2003 - 2004 in that "Internet and telecom boom had driven mass investments in IT; consequently, as the economy recovered there was less need to refresh hardware." They also note that tech spending recovery is being led by emerging markets. Collins expects HPQ to report an EPS of $1.07 and revs of $30.2 billion.

Brean Murray Carret & Co. started coverage on HPQ with a Buy rating and price target of $60. They see HPQ as undervalued given "1) its valuation (10x our FY10 EPS estimate), 2) our belief there is upside to Street EPS, and 3) our belief that both stronger-than-expected revenue and operating margins through H210 could drive EPS meaningfully above even our above-Street estimates." They believe that HPQ can top on simply "typical" seasonal revs, even after adjusting for Euro exchange, where the company derives about 35% - 40% of its revs.

Susquehanna maintained its Positive rating and $58 price target into Q2 results. According to the firm, "We expect HP to post 2QFY10 revenue and EPS in-line with our/consensus estimates of $29.8 bln and $1.05... We anticipate the company (HPQ) is targeting to regain some of that lost share and will benefit commensurate with our recently raised PC forecasts." Other possible upside from industry standard servers and storage exists along with strength in printer hardware and supplies growth."

Kaufman Bros reiterates a 'Buy' rating and a $60 price target ahead of Q2 results. According to a Kaufman Brother's analyst, "Anticipate results at upper-end of its guidance, which is meet or beat consensus... Checks indicate company will likely back FY10 view, meaning 7%-8% top-line and double-digit EPS growth."

Hewlett-Packard Co. is expected to release their Q210 earnings on Tuesday, May 18, 2010, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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