Barclays Downgrades HP

HP closed at $19.35, close to its 52 week low of $19.02.  As we mentioned a while back, the chart looked awful.  Every newspaper reader knows the tech sector is challenged for top line growth.  The market also appears to be entering the summer malaise. 

Given how poor HP's technobabble guidance has been, analysts are realizing that there's absolutely no reward for being heroic about the upcoming third quarter earnings due out August 22nd.  So today, Barclay's analyst Ben Reitzes cut his rating on HPQ to "Equal Weight," whatever that means.  It doesn't mean, "buy," or "accumulate."

Reitzes' 2012 EPS estimate is cut from $4.04 to $3.99, a reduction of 1.2%.  So, since the market appears to want to price HP at 5 times forward earnings, it would suggest a $20 price, which is roughly where the stock is today.  The analysts is derisking his position.

His main reason for the reduction in revenue and earnings is pressure on the printing business.  That's all well and good, a reasonable conclusion which reflects the current realities with retailers, channel pricing, and promotions to fight off ink refills.The fear factor is a interesting tactic. Why is printing under pressure?

"Reitzes also notes that as younger workers join the workforce, they may be doing less printing (and more with mobile apps)."(Street Insider)

This is a demographic shift which is surely not taking place intra-quarter!   What measure would the analyst have for this shift?  I sympathize with him: he wants to cut his number to get closer to consensus and he needs a cover.  It sounds good, forward looking, and it goes with all the ads for people staring at their smart phones. 

This demonstrates again the limited value of Wall Street research and the lack of any real clarity from HP management in where their business is going and what will drive it.  Hopefully, HP has set expectations so low, with so much slop in their guidance, that there won't be an earnings warning between now and August 22nd.