Shares of HP(NYSE: HPQ) were rallying in Thursday trading, up as much as 6.1% before settling into a 3.8% gain as of 1:24 p.m. ET.
After Hewlett-Packard split into two companies, HP Inc. now handles the low-growth businesses of PCs and printers/ink. And the growth challenges were on display when the company released earnings last night.
Still, the stock rallied today on optimism that artificial intelligence (AI) PCs will help with growth into next year, as well as the CEO making news by promising more "aggressive" cost cuts in the printer division.
A value stock doing its best
In the company's fiscal third quarter ending in July, HP delivered revenue growth of 2.4%, which slightly exceeded analyst expectations, but adjusted (non-GAAP) earnings per share of $0.83 missed expectations. Management also took down its bottom-line estimates for the full fiscal year, which it now estimates will fall in a range of $3.35 to $3.45 on an adjusted basis.
Still, it appears the source of last night's underperformance was really the printer business, which continued to be pressured by work-from-home trends and stiff competition from foreign rivals. While consumer printing sales rose 2%, that's a pretty small part of the printing segment's revenue. Meanwhile, commercial printing sales were down 5%, leading to a 3% decline in the overall printing segment.
However, CEO Enrique Lores said in an interview that the company would be more aggressive in its cost cuts around the printing division going forward. That may have spurred optimism that HP will be able to milk more profitability from this slowly declining segment.
Meanwhile, the PC segment saw some growth, with consumer PCs down 1%, but HP's much larger commercial segment growing 8%. And Lores also expressed optimism about AI PCs, which have the potential to lift average selling prices and volume for HP into next year.
Apparently, the optimism over the PC segment outweighed the difficult printer segment, sending HP's shares higher today.
HP is a solid dividend stock
With two mature or declining businesses, HP isn't going to impress anyone looking for growth. However, management seems to be doing a good job of cutting costs, milking profits, and returning those profits to shareholders. The company's dividend yield is now 3.2%, and it's also returning lots of cash to shareholders in the form of share repurchases. In just the third quarter alone, management returned almost $0.9 billion to shareholders, with $600 million in repurchases and $268 million in dividends.
At HP's mere $35 billion market cap, that's nearly a 10% total shareholder return on an annualized basis. Therefore, those interested in dividend value stocks with steadily rising payouts should look at HP, especially as AI PCs appear primed to drive results next year.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends HP. The Motley Fool has a disclosure policy.
