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Transcript of HP Analyst Report
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8/19/2019 HP Analyst Report
1/11
E Q U I T Y R E S E A R C H
RBC Capital Markets, LLC
Amit Daryanani, CFA(Analyst)(415) [email protected]
Mitch Steves (Analyst)(415) [email protected]
Irvin Liu (Senior Associate)(415) [email protected]
Jeriel Ong (Senior Associate(415) 633-8559
Sector: IT Hardware
Sector PerformNYSE: HPQ; USD 10.82
Price Target USD 11.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
DownsideScenario
8.00
21%
CurrentPrice
10.82
PriceTarget
11.00
6%
UpsideScenario
14.00
34%
*Implied Total Returns
Key StatisticsShares O/S (MM): 1,785.0
Dividend: 0.50
Market Cap (MM): 19,3
Yield: 4.6
Avg. Daily Volume: 18,347,8
RBC EstimatesFY Oct 2014A 2015A 2016E 201
Revenue 111.4 103.4 47.6 46
Prev. 48.5 47
EPS, Adj Diluted 3.74 3.59 1.59 1.
Prev. 1.58
P/AEPS 2.9x 3.0x 6.8x 6.
Revenue Q1 Q2 Q3 Q
2015 26.8A 25.5A 25.3A 25.7
2016 12.2A 11.8E 11.7E 11.
Prev. 12.3E 12.1E 11.9E 12.
2017 11.6E 11.4E 11.4E 11.
Prev. 11.9E 11.9E 11.6E 12.
EPS, Adj Diluted
2015 0.92A 0.87A 0.88A 0.93
2016 0.36A 0.37E 0.42E 0.4
Prev. 0.34E 0.42E 0.34E 0.4
2017 0.37E 0.39E 0.43E 0.4
Prev. 0.36E 0.44E 0.35E 0.42014 and first three quarters of 2015 are historicals pending restatemeby the company and do not reflect the spin-off of HPE.All values in USD unless otherwise noted.
February 25, 2016
Hewlett-Packard Company
Headwinds Persist but Cost Containment ShouldPartially Offset Soft Macro
Our view: HPQ's Jan-qtr results ($12.2B/$0.36) were largely in line with
consensus ($12.1B/$0.36),
Key points:ALL YOU NEED TO KNOW: HPQ's Jan-qtr results were reflective of macro
challenges in both its PC and Printing markets. Specifically, HPQ's double-
digit revenue declines were due to: 1) broader PC market weakness
negatively impacting PSG volume and pricing; 2) strategic sales of printing
hardware units (shifting sales away from low-use customers toward
higher-value, high-usage customers); and 3) Supplies – installed base
erosion, channel inventory adjustments, and share losses to aftermarket.
We note that the company's FY16E EPS/FCF guidance of $1.59–1.69/
$2.3–2.6B assumes a H2:16 improvement in both PC and Supplies
revenue trajectories combined with benefits of cost actions (accelerated
restructuring activity). While the stock is trading at an attractive valuation/
dividend yield, our concern is that, in the event broader macro headwinds
persist through 2016, there could be risk to FY16E numbers. Maintaining
Sector Perform rating and $11 price target.
Quarter Review: HPQ reported Jan-qtr revenues/EPS of $12.2B/$0.36,
which was largely in line with consensus expectations of $12.1B/$0.36.
Notably, EPS was at the midpoint of management’s expectations ($0.33–
0.38). Total revenues were down -11.6% y/y. Revenue performance by
segment included the following: PSG was down -13% y/y while IPG was
also down -17% y/y. A one-time benefit from the release of deferred
revenue related to the HPE separation benefited total revenue growth by
~1–2pts. Adjusted operating margin of 7.8% was down -60bps y/y and up
+70bps q/q. HPQ used -$108M in cash from operations and had -$228M
in FCF, which is below expectations of +$300M in FCF.
BS and Cash Flow: Cash cycle days were up four days y/y to -15 days.
The company had -228M in free cash flow for the Jan-qtr. The company
believes it should generate $2.3–2.6B of FCF in FY16 ($2.9–3.2B on a
normalized basis after adjusting for $300M in cash restructuring charges
and $300M in cash separation expenses).
Guidance: HPQ maintained its FY16 EPS guidance range of $1.59–1.69,
including Apr-qtr EPS of $0.35–0.40 (Street $0.39). HPQ guided to double-
digit y/y declines in both IPG hardware and supplies for Apr-qtr. The
company lowered its FY16E FCF guide by $100M at the midpoint to $2.3–
2.6B (down from $2.4–2.7B) to reflect cash restructuring costs from the
acceleration of its restructuring plan (HPQ now expects 3,000 employees
to exit by FY16 ahead of prior FY18 target). The company still expects
to generate $2.9–3.2B of FCF on a normalized basis, after adjusting for
$300M in cash restructuring payments and $300M in separation cash
payments.
Priced as of prior trading day's market close, EST (unless otherwise noted)For Required Conflicts Disclosures, see Page 8.
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8/19/2019 HP Analyst Report
2/11
Target/Upside/Downside Scenarios
Exhibit 1: Hewlett-Packard Co
300m
200m
100m
O N
2013
D J F M A M J J A S O N
2014
D J F M A M J J A S O N
2015
D J F
UPSIDE14.00
TARGET11.00
CURRENT10.82
DOWNSIDE8.00
Feb 2017
43
33
28
23
18
13
8
125 Weeks 04OCT13 - 24FEB16
HPQ Rel. S&P 500 COMPOSITE MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Target price/base caseIn our base case scenario, we assume that FY16 revenue
will decline low-to-mid single digits while non-GAAP EBIT
margin will hold fairly steady on productivity gains offset by
currency headwinds. We have factored in cost savings and
share repurchases largely offsetting revenue, currency, and
separation dis-synergy headwinds. Based on a ~7x FTM P/E
multiple, the stock could trade toward $11.
Upside scenario
In our upside scenario, we assume that FY16 revenue is flat
to slightly down y/y despite the headwinds in the PC, Print
Hardware, and Supplies business units. This scenario also
assumes that HPQ is able to achieve the high end of its targetoperating margin range of 9–10% and generate $3B+ of free-
cash flow. Based on an ~9x FTM P/E multiple, the stock could
trade toward $14.
Downside scenario
In our downside scenario of $8/share, we see a high-single-
digit revenue decline in FY16 that would offset the favorable
benefits of productivity gains. We would also see non-GAAP
EPS declining by double digits. Using a FTM P/E multiple of ~5x,
we believe the stock could trade down to $8. We also think
FCF could fall below ~$2B on lower net income, less favorable
working capital metrics (cash conversion cycle above 0), and
higher-than expected separation cash outlays.
Investment summaryHP’s top and bottom lines should be pressured through
FY16: We believe HP should see challenging growth dynamics
through FY16 on foreign currency translation headwinds,
competitive industry pricing, and PC channel inventory issues.
From a shareholder return standpoint, we think the company's
relatively high dividend yield could be attractive for investors.
FCF remains a driving factor for valuation and stock
performance: Historically, the driver of HP's stock price
performance has been its FCF trends. We expect this dynamic
to remain for HPQ. For FY16, we think FCF of $2.3–2.6B will
be well below normalized levels (~$3B) after adjusting for
restructuring and separation cash payments.
Potential catalystsSupplies recovery: HPQ Supplies' quarterly revenue has
declined on a y/y basis for the last 16 quarters. The company
expects the decline to continue through FY16. We think a
moderation in decline or revenue stabilization in HPQ's higher-
margin supplies business could drive improved mix and margin
upside.
PC stabilization: A better than expected improvement in the
PC Market could positively impact HPQ's Personal Systems
revenue trajectory.
RisksGlobal Macro Downturn: A muted IT spend environment
would negatively impact revenue and margin profiles for the
company.
Competition: The risk of HP Inc. using supplies margins as a
lever to drive an aggressive pricing strategy to increase install
base could yield margin headwinds in FY16 and beyond.
Currency: ~60% of HPQ's revenue is generated outside the
United States. A depreciation of global currency relative to the
U.S. dollar could negatively impact both revenue and EPS.
Hewlett-Packard Co
IT Hardware
February 25, 2016 Amit Daryanani, CFA (415) 633-8659; [email protected] 2
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8/19/2019 HP Analyst Report
3/11
Hewlett Packard Co. Earnings ReviewJan-Qtr Review: HPQ reported Jan-qtr revenues/EPS of $12.2B/$0.36, which was largely in
line with consensus expectations of $12.1B/$0.36. Notably, EPS was at the midpoint of
management’s expectations ($0.33 –0.38). Total revenues were down -11.6% y/y. Revenueperformance by segment included the following: PSG was down -13% y/y while IPG was also
down -17% y/y. A one-time benefit from the release of deferred revenue related to the HPE
separation benefited total revenue growth by ~1 –2pts. Adjusted operating margin of 7.8%
was down -60bps y/y and up +70bps q/q. HPQ used -$108M in cash from operations and had
-$228M in FCF, which is below expectations of +$300M in FCF.
Exhibit 2: HPQ Earnings Analysis ($ in millions)
Quarterly Comparison
Jan-16 Jan-15 Oct-15 RBC Estimate Y/Y Vs. RBC RBC Perspective
Net Sales $12,246 $13,858 $12,266 $12,257 -11.6% -0.1% Largely in-l ine with Street after adjusting for deferred revenue separation benefit
Cost of Goods Sold $9,961 $11,173 $9,900 $9,941 -10.8% 0.2%
% Of Sales 81.3% 80.6% 80.7% 81.1% + 70 bps
Gross Profit $2,285 $2,685 $2,366 $2,317 (14.9%) (1.4%)
Gross Margin 18.7% 19.4% 19.3% 18.9% (70 bps) (20 bps) Slightly below our estimates
Research and Development $292 $304 $282 $374 -3.9% -21.9%
% Of Sales 2.4% 2.2% 2.3% 3.1% + 20 bps (70 bps)
SG&A $1,037 $1,222 $1,212 $1,066 -15.1% -2.8% Slightly below our estimates
% Of Sales 8.5% 8.8% 9.9% 8.7% (30 bps) (20 bps)
Operating Income $916 $1,101 $814 $864 -16.8% 6.0%
Adjusted Operating Margin 7.8% 8.4% 7.1% 7.2% (60 bps) + 70 bps Margin should improve over the course of FY16E.
Interest (Income)/Expense $94 $121 $99 $188 -22.3% -49.9%
Pretax Inc./(Loss) Cont. Ops. GAAP $822 $980 $715 $677 -16.1% 21.5%
Pre-Tax Margin 6.7% 7.1% 5.8% 5.5% (40 bps) + 120 bps
Taxes $177 $215 $167 $145 -17.7% 21.7%
Tax Rate 22% 22% 23% 22% (40 bps) + 0 bps Remains stable in the low twenties
Net Income $645.0 $765.0 $548.0 $531.2 -15.7% 21.4%
After-Tax Margin 5.3% 5.5% 4.5% 4.3% (30 bps) + 90 bps
Shares - Diluted 1,785 1,861 1,821 1,813 -4.1% -1.5%
Diluted GAAP EPS $0.36 $0.42 $0.30 $0.34 -13.4% 5.8% Beat our estimate by $0.02
Source: Company reports and RBC Capital Markets estimates
GuidanceHPQ maintained its FY16 EPS guidance range of $1.59 –1.69, including Apr-qtr EPS of $0.35 –
0.40 (Street $0.39). HPQ guided to double-digit y/y declines in both IPG hardware and
supplies for Apr-qtr. The company lowered its FY16E FCF guide by $100M at the midpoint to
$2.3 –2.6B (from $2.4 –2.7B) to reflect cash restructuring costs from the acceleration of its
restructuring plan (HPQ now expects 3,000 employees to exit by FY16 ahead of prior FY18
target). The company still expects to generate $2.9 –3.2B of FCF on a normalized basis, after
adjusting for $300M in cash restructuring payments and $300M in separation cash
payments.
Hewlett-Packard Co
IT Hardware
February 25, 2016 Amit Daryanani, CFA (415) 633-8659; [email protected] 3
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8/19/2019 HP Analyst Report
4/11
Segment Review
Personal Systems Group (~60% of sales)HPQ reported PSG revenues of $7.5B, -13% y/y, with operating margin of 3.1%, which was
down -60bps q/q and down -40bps y/y. Commerical revenue declined -11% y/y and
consumer was down -16% y/y. Revenues from Notebooks were down -11.0% y/y while
desktop revenues were down -14.3% y/y; units of notebooks were down -11% y/y and
desktop units fell -13% y/y. For the Apr-qtr, we see revenues decreasing -8% y/y on
continued softness in the PC market offset by a somewhat easier y/y comparison. Over time,
we see room for margin improvement via benefits from cost reductions, supply chain
efficiencies, and the introduction of new products.
Exhibit 2: PSG Detail ($ in millions)
Segment Sales Jan-16 Jan-15 Oct-15 Y/Y % Q/Q %
Notebooks $4,205 $4,724 $4,384 -11% -4%
Desktops $2,527 $2,949 $2,530 -14% -0%
Workstations $444 $526 $472 -16% -6%
Other $291 $363 $308 -20% -6%
Personal Sy stems G roup $7,467 $8,562 $7,694 -13% -3%
Segment Operating Margin 3.1% 3.5% 3.7% -40 bp s -60 bp s2%
3%
4%
5%
6%
$7,000
$7,500
$8,000
$8,500
$9,000
$9,500
$10,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Personal Systems Group PSG Margins
Source: Company reports and RBC Capital Markets estimates
Imaging and Printing Group (~40% of sales)IPG posted revenues of $4.6B, -17% y/y and -7% q/q. Supplies revenue fell -13.9% y/y and
-4.3% q/q. Management indicated that the segment lost a three points of total share y/y in
calendar Q4 due to strategic selling and pricing discipline but gained one point in share in the
value multi-function laser printer market. Commercial hardware units declined -15% y/y
while consumer hardware units were down -23% y/y. Segment operating margins of 17.0%
was up +10bps q/q fell -180 bps y/y.
Exhibit 3: Imaging and Printing Detail ($ in millions)
Segment Sales Jan-16 Jan-15 Oct-15 Y/Y % Q/Q %
Co mme rci a l H ard wa re $1,219 $ 1,394 $ 1,366 -13% -11%Consumer Hardware $322 $601 $360 -46% -11%
Supplies $3,101 $3,601 $3,239 -14% -4%
Other $4,642 $5,596 $4,965 -17% -7%
Segment Operating Margin 17.0% 18.8% 16.9% - 180 bps +10 bps
10%
12%
14%
16%
18%
20%
$4,500
$4,750
$5,000
$5,250
$5,500
$5,750
$6,000
$6,250
$6,500
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Printing Gr oup IPG Margins
Source: Company reports and RBC Capital Markets estimates
Personal Systems GroupRevenue declined -13% y/y
Imaging and Printing fell
-17% y/y
Hewlett-Packard Co
IT Hardware
February 25, 2016 Amit Daryanani, CFA (415) 633-8659; [email protected] 4
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8/19/2019 HP Analyst Report
5/11
Balance Sheet and Cash FlowCash cycle days were up four days y/y to -15 days. The company had -228M in free cash flow
for the Jan-qtr. It believes it should generate $2.3 –2.6B of FCF in FY16 ($2.9 –3.2B on a
normalized basis after adjusting for $300M in cash restructuring charges and $300M in cashseparation expenses).
Estimate ChangesOur FY16 revenue/EPS estimates are $47.6B/$1.59, including our Apr-qtr forecast of
$11.8B/$0.37. For FY17, we are modeling $46.2B/$1.64.
Hewlett-Packard Co
IT Hardware
February 25, 2016 Amit Daryanani, CFA (415) 633-8659; [email protected] 5
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8/19/2019 HP Analyst Report
6/11
ValuationOur price target of $11 is based on a FTM P/E multiple of ~7x. Our target multiple reflects a
significant discount to the large cap technology company peer group average due to HPQ’s
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8/19/2019 HP Analyst Report
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Amit Daryanani, CFA (415) 633-8659; [email protected]
Two Embarcadero Center, Suite 2350, San Francisco, CA 94111 Hewlett-Packard (NYSE: HPQ)Income Statement ($M) Jan-16 Apr-16E Jul-16E Oct-16E Jan-17E Apr-17E Jul-17E Oct-17E FY16E FY17E CY16E CY17E
Net Sales $12,246.0 $11,756.7 $11,664.1 $11,913.6 $11,625.0 $11,391.6 $11,406.1 $11,746.9 $47,580 $46,170 $46,959 $46,011
Q/Q Change -0.2% -4.0% -0.8% 2.1% -2.4% -2.0% 0.1% 3.0% NA NA NA NA
Y/Y Change -11.6% -9.4% -5.7% -2.9% -5.1% -3.1% -2.2% -1.4% -7.5% -3.0% -5.8% -2.0%
Cost of Goods Sold 9,961.0 9 ,522.9 9,401.3 9,566.7 9,432.6 9,193.0 9,170.5 9,409.2 38,451.8 3 7,205.4 37,923.4 37,030.6
% Of Sales 81.3% 81.0% 80.6% 80.3% 81.1% 80.7% 80.4% 80.1% 80.8% 80.6% 80.8% 80.5%
Gross Profit 2,285.0 2,233.8 2,262.8 2,347.0 2,192.4 2,198.6 2,235.6 2,337.6 9,128.6 8,964.2 9,036.0 8,980.1 Gross Margin 18.7% 19.0% 19.4% 19.7% 18.9% 19.3% 19.6% 19.9% 19.2% 19.4% 19.2% 19.5%
Q/Q Change -3.4% -2.2% 1.3% 3.7% -6.6% 0.3% 1.7% 4.6% NA NA NA NA
Y/Y Change -14.9% -16.8% -3.2% -0.8% -4.1% -1.6% -1.2% -0.4% -9.4% -1.8% -6.6% -0.6%
Research and Development 292.0 2 82.2 279.9 285.9 279.0 273.4 285.2 281.9 1,140.0 1,119.5 1,127.0 1 ,115.7
% Of Sales 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.5% 2.4% 2.4% 2.4% 2.4% 2.4%
Q/Q Change 3.5% -3.4% -0.8% 2.1% -2.4% -2.0% 4.3% -1.1% NA NA NA NA
Y/Y Change -3.9% -27.5% -24.6% 1.4% -4.5% -3.1% 1.9% -1.4% -15.3% -1.8% -15.5% -1.0%
SG&A 1,037.0 9 87.6 921.5 953.1 972.8 945.5 889.7 928.0 3,899.1 3,736.0 3,834.9 3 ,711.2
% Of Sales 8.5% 8.4% 7.9% 8.0% 8.4% 8.3% 7.8% 7.9% 8.2% 8.1% 8.2% 8.1%
Q/Q Change -14.4% -4.8% -6.7% 3.4% 2.1% -2.8% -5.9% 4.3% NA NA NA NA
Y/Y Change -15.1% -19.8% -19.0% -21.4% -6.2% -4.3% -3.4% -2.6% -18.8% -4.2% -17.0% - 3.2%
Amortization of Intangibles 40.0 35.3 29.2 29.8 29.1 28.5 28.5 29.4 134.2 115.4 123.3 115.0
% Of Sales 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Income (Loss) From Operations (Non-GAAP) 916.0 928.8 1,032.3 1,078.2 911.5 951.2 1,032.3 1,098.3 3,955.2 3,993.3 3,950.8 4,038.2
% Of Sales 7.5% 7.9% 8.8% 9.1% 7.8% 8.4% 9.1% 9.3% 8.3% 8.6% 8.4% 8.8%
Adjusted Operating Margin 7.8% 8.2% 9.1% 9.3% 8.1% 8.6% 9.3% 9.6% 8.6% 8.9% 8.7% 9.0%
Incr. Margin 11.5% 9.0% -32.2% -75.0% 0.7% -6.1% 0.0% -12.1% 8.6% 8.9% 8.6% 8.8%
Interest (Income)/Expense 94.0 90.0 85.0 80.0 80.0 80.0 80.0 80.0 349.0 320.0 335.0 320.0
Misc. (Inc.)/Loss 0 0 0 0 0 0 0 0 0 0 0 0
Pretax Inc./(Loss) Cont. Ops. GAAP 822.0 838.8 947.3 998.2 831.5 871.2 952.3 1,018.3 3,606.2 3,673.3 3,615.8 3,718.2
Pre-Tax Margin 6.7% 7.1% 8.1% 8.4% 7.2% 7.6% 8.3% 8.7% 7.6% 8.0% 7.7% 8.1%
Prov. For Tax 177.0 1 80.3 203.7 214.6 178.8 187.3 204.7 218.9 775.6 789.8 777.4 784.4
Tax Rate 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 21%
Implied Non-GAAP Taxes $186 $188 $210 $221 $185 $193 $211 $225 $804 $815 $804 $809
Implied Non-GAAP Tax Rate 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.1%
Income (Loss) Cont. Ops. $645 $658 $744 $784 $653 $684 $748 $799 $2,831 $2,884 $2,838 $2,919
Extra-Ordinary Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cum. Effect Of Acctg. Change 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net Profit $645 $658 $744 $784 $653 $684 $748 $799 $2,831 $2,884 $2,838 $2,919
Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net Profit Avail. Common 645.0 658.4 743.6 783.6 652.7 683.9 747.5 799.4 2,830.6 2,883.5 2,838.4 2,918.8
After-Tax Margin 5.3% 5.6% 6.4% 6.6% 5.6% 6.0% 6.6% 6.8% 5.9% 6.2% 6.0% 6.3%
Shares - Basic 1,776 1,771 1,766 1,761 1,756 1,751 1,746 1,741 1,769 1,749 1,764 1,744
Shares - Diluted 1,785 1,780 1,775 1,770 1,765 1,760 1,755 1,750 1,778 1,758 1,773 1,753
Pro-Forma EPS (Cont. Ops) $0.36 $0.37 $0.42 $0.44 $0.37 $0.39 $0.43 $0.46 $1.59 $1.64 $1.60 $1.62
Source: Company Reports and RBC Capital Markets Estimates.
Hewlett-Packard C
IT Hardwar
February 25, 2016 Amit Daryanani, CFA (415) 633-8659; [email protected]
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8/19/2019 HP Analyst Report
8/11
Required disclosures
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
A member company of RBC Capital Markets or one of its affiliates managed or co-managed a public offering of securities for
Hewlett-Packard Co in the past 12 months.
A member company of RBC Capital Markets or one of its affiliates received compensation for investment banking services from
Hewlett-Packard Co in the past 12 months.
RBC Capital Markets, LLC makes a market in the securities of Hewlett-Packard Co.
A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than
investment banking services from Hewlett-Packard Co during the past 12 months. During this time, a member company of RBC
Capital Markets or one of its affiliates provided non-securities services to Hewlett-Packard Co.
RBC Capital Markets is currently providing Hewlett-Packard Co with non-securities services.
RBC Capital Markets has provided Hewlett-Packard Co with investment banking services in the past 12 months.
RBC Capital Markets has provided Hewlett-Packard Co with non-securities services in the past 12 months.
Explanation of RBC Capital Markets Equity rating systemAn analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to
the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and
Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because
our ratings are determined on a relative basis.
Ratings
Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months
with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Risk RatingAs of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects
a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited
operating history that result in a higher expectation of financial and/or stock price volatility.
Hewlett-Packard Co
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Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 31-Dec-2015
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Top Pick & Outperform] 933 52.59 271 29.05
HOLD [Sector Perform] 727 40.98 102 14.03
SELL [Underperform] 114 6.43 8 7.02
References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Dividend Growth (RL 8),
the Guided Portfolio: Midcap 111 (RL 9), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: Global Equity (U.S.) (RL 11).
RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios.
The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date
a security was removed from a Recommended List.
Equity valuation and risks
For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
see the most recent company-specific research report at https://www.rbcinsight.com or send a request to RBC Capital Markets
Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
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or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
Dissemination of research and short-term trade ideasRBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having
regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website
to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional
distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also
receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firms
proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding
subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time,
include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on
how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A
short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the
research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons,
methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure
in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible
to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and
the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade
ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and
investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact
your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research.
Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services
LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied
warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties
of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing,
in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special,
punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Disclaimer
RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC
Capital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney
Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty,
express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All
opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and
are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment
advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent
investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy
any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital
Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking
revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other
investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be
eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/
or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable
industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is
not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not
legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor
any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information
contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets.
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Additional information is available on request.
To U.S. Residents:
This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts
responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in
a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should
contact and place orders with RBC Capital Markets, LLC.
To Canadian Residents:
This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution in
Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and
that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC
Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada.
To U.K. Residents:
This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for general
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RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom.
To Persons Receiving This Advice in Australia:
This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared
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this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition
or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product
and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section
761G of the Corporations Act.
To Hong Kong Residents:
This publication is distributed in Hong Kong by RBC Capital Markets (Hong Kong) Limited and Royal Bank of Canada, Hong Kong Branch (both entities which are
regulated by the Hong Kong Monetary Authority ('HKMA') and the Securities and Futures Commission ('SFC')). Financial Services provided to Australia: Financial
services may be provided in Australia in accordance with applicable law. Financial services provided by the Royal Bank of Canada, Hong Kong Branch are provided
pursuant to the Royal Bank of Canada's Australian Financial Services Licence ('AFSL') (No. 246521). RBC Capital Markets (Hong Kong) Limited is exempt from the
requirement to hold an AFSL under the Corporations Act 2001 in respect of the provision of such financial services. RBC Capital Markets (Hong Kong) Limited is
regulated by the HKMA and the SFC under the laws of Hong Kong, which differ from Australian laws.
To Singapore Residents:
This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity granted offshore bank licence by the Monetary
Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any
recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should
consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication,
please contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination
in Singapore.
To Japanese Residents:
Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd. which is a Financial Instruments
Firm registered with the Kanto Local Financial Bureau (Registered number 203) and a member of the Japan Securities Dealers Association ("JSDA").
.® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.
Copyright © RBC Capital Markets, LLC 2016 - Member SIPC
Copyright © RBC Dominion Securities Inc. 2016 - Member Canadian Investor Protection Fund
Copyright © RBC Europe Limited 2016
Copyright © Royal Bank of Canada 2016
Copyright © RBC Capital Markets (Hong Kong) Limited 2016
All rights reserved
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