HP Inc. cut at Morgan Stanley on limited upside

Morgan Stanley downgraded HP Inc. (NYSE:) from Overweight to Equal-Weight in a note to clients Monday, citing limited upside in both valuation and future earnings estimates.

Despite HP’s recent stock performance, the firm believes that the positive catalysts driving the company’s growth have now been fully priced in.

Morgan Stanley’s analysts noted that HPQ is currently trading at approximately 10 times its price-to-earnings (P/E) ratio, which is around one standard deviation above its historical average.

With the company’s “shares now trading at ~10x P/E, just 10% off all-time highs, we believe these factors have now been largely priced in,” Morgan Stanley stated.

The firm originally upgraded HPQ to Overweight in December 2023, driven by the belief that the market was underestimating a recovery in Personal Systems revenue growth, stable print margins, and accelerating capital returns.

However, after a 14-point outperformance over the last six months, analysts see limited room for further growth.

“We see limited room for multiple expansion from here,” they added, particularly as their forecasts already imply peak growth rates for FY25.

Morgan Stanley also expressed concerns about weaker-than-expected PC demand in the second half of the year and potential declines in print margins due to a negative mix shift.

With HPQ’s F4Q earnings report approaching on August 28th, the firm’s revenue and EPS forecasts are 3% below consensus, resulting in them “taking some chips off the table” and downgrading the stock. The price target remains unchanged at $37.