Goldman Sachs cuts HP stock price target to $26 from $33

Goldman Sachs lowered its price target on HPQ to $26 from $33, maintaining a Neutral rating, after HP's Q2 2025 EPS of $0.71 missed estimates due to lower-than-expected Personal Systems EBIT margin of 4.5% driven by higher tariff costs. While Personal Systems revenue grew 7% and Print margins improved, HP tempered its FY25 PC unit growth outlook to low single digits due to macroeconomic uncertainty and expects to mitigate tariff costs by Q4, though the unpredictable tariff environment may continue to pressure margins.

Analysis

HP Inc. (HPQ) reported mixed second-quarter fiscal 2025 results, with earnings per share of $0.71 falling short of Goldman Sachs' $0.82 and consensus $0.80 estimates, primarily due to a lower-than-anticipated Personal Systems EBIT margin of 4.5% versus Goldman's 5.7% projection. This margin compression was driven by tariff costs impacting EPS by $0.12, significantly above the $0.04 previously guided. Consequently, Goldman Sachs revised HPQ's price target downward to $26.00 from $33.00, while maintaining a Neutral rating. Despite these challenges, Personal Systems revenue saw a 7% year-over-year increase, meeting expectations, and the Print division demonstrated strength with sequential EBIT margin improvement to 19.5%, exceeding its target range. Overall revenue reached $13.2 billion, surpassing the $13.07 billion forecast. However, HP has tempered its full-year 2025 PC unit growth forecast to low single-digits from mid-single-digits, citing macroeconomic uncertainty, which contrasts with IDC's more optimistic 4.1% industry growth projection. HP aims to mitigate tariff impacts by the fourth fiscal quarter, with plans to have no US-sold products originating from China by June, potentially improving margins. The company also projects fiscal year 2025 non-GAAP EPS between $3.00 and $3.30 and is strategically investing in an AI-driven PC portfolio. InvestingPro data indicates HP maintains a 'GOOD' financial health score, trades at a P/E of 9.8x, appears undervalued by Fair Value analysis, and offers a 4.26% dividend yield, having maintained payments for 55 consecutive years, supported by aggressive share buybacks and strong free cash flow yield.

Key Decisions for Investors

• Investors should carefully monitor HP's ability to execute its tariff mitigation strategy by Q4 and the subsequent impact on Personal Systems margins, as this is a critical factor for achieving its FY25 EPS guidance of $3.00-$3.30.
• Consider the dichotomy between the near-term pressures from tariff uncertainties and softened PC market outlook against the company's resilient Print division, consistent capital returns via a 4.26% dividend yield and buybacks, and potential long-term growth from its new AI PC portfolio.
• Evaluate if the current stock price, which declined in aftermarket trading and reflects a P/E of 9.8x, adequately prices in the risks, particularly given InvestingPro's 'undervalued' assessment, while being mindful of the reduced PC growth outlook compared to broader industry forecasts.