HP gave investors a stronger quarter than expected, but Bank of America is not ready to call it a clean turnaround.
HP (HPQ) reported fiscal second-quarter results that topped its prior earnings outlook, helped by stronger revenue, better pricing, and improved free cash flow. The company also gave investors a firmer view of fiscal 2026 after two quarters of steadier execution.
In a Bank of America note given to TheStreet, analyst Wamsi Mohan reiterated an Underperform rating on HP and raised the firm’s price objective to $18 from $16. Based on the $25.49 share price listed in the note, that target implies roughly 29% downside.
HP beats, but BofA focuses on the pressure ahead
HP reported fiscal second-quarter net revenue of $14.4 billion, up 9% from the prior-year period. GAAP diluted earnings per share rose to 49 cents from 42 cents, while non-GAAP diluted earnings per share increased to 86 cents from 71 cents.
The non-GAAP result came in above HP’s previous second-quarter outlook of 70 cents to 76 cents, which the company issued in February. HP also generated $900 million in net cash from operating activities and $800 million in free cash flow during the quarter.
CFO Karen Parkhill said HP delivered “strong second-quarter results” with 9% revenue growth and stronger earnings and free cash flow. Interim CEO Bruce Broussard said the company continued executing around intelligent devices, edge AI, and connected experiences while navigating rising commodity costs.
BofA focused less on the beat itself and more on what helped drive it. Mohan said HP benefited from pricing, demand pull-ins, mix, and lower-cost inventory, while warning that demand sustainability remains a key debate heading into the second half.
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Personal Systems gives HP a boost with a warning
The strongest part of HP’s quarter came from Personal Systems, the company’s PC business.
Personal Systems revenue rose 13% year over year to $10.2 billion. Commercial revenue increased 14%, while consumer revenue rose 10%. The issue was volume, as total Personal Systems units fell 7%, with consumer units down 8% and commercial units down 7%.
That split helps explain why BofA stayed cautious. Revenue rose while units declined, which means pricing and mix carried a larger part of the quarter.
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In the note, Mohan said Personal Systems operating margins were above expectations at 5.2%, helped by lower-cost inventory on hand. He also said HP’s view now lines up with an industry outlook for double-digit PC unit declines in the second half, offset partly by pricing and mix.
HP has already warned investors about that pressure in its own filings. In its annual report, the company said gross margins can be pressured by competitive pricing, component and manufacturing costs, and “especially increasing memory and storage costs” in Personal Systems.
HP can use pricing to help offset higher input costs, but BofA sees less room for margin improvement if memory costs keep moving against the company.
Print adds another concern for investors
Printing revenue was flat year over year at $4.2 billion, while segment operating profit was $773 million. Consumer Printing revenue fell 10%, Commercial Printing revenue was flat, and total hardware units declined 7%.
In the note, Mohan said Print operating margins were helped by pricing and cost reduction, but the full-year Print operating margin guide is now expected to be “solidly” in HP’s long-term range. The prior view was closer to the top end of that range.
HP raises estimates, but BofA stays cautious
HP now expects fiscal 2026 GAAP diluted EPS of $2.15 to $2.45 and non-GAAP diluted EPS of $2.90 to $3.10. The company also continues to expect free cash flow of $2.8 billion to $3 billion for the year.
BofA raised its fiscal 2026 revenue and EPS estimates after the quarter, moving its revenue forecast to $57.7 billion from $56.9 billion and its EPS estimate to $2.97 from $2.83.
The firm also raised its price objective to $18, based on 6 times its calendar 2027 EPS estimate of $3.06.
BofA sees HP dealing with slower PC unit growth, memory cost pressure, a weaker Print outlook, and uncertainty tied to the leadership transition. For investors, the question is whether HP can defend margins once the help from pricing, inventory, and demand pull-ins begins to fade.
Related: JPMorgan resets HPQ stock price target ahead of earnings
