HP Just Raised Its Dividend and Profit Outlook. Its Stock Is Jumping.
jumped after the company sharply increased its dividend and laid out a bullish outlook for its upcoming fiscal year.
As part of a virtual analyst day with investors—the company’s first since 2019—CFO Marie Myers said Wednesday that HP (ticker: HPQ) is hiking its annual dividend to $1 a share, boosting the yield to about 3.3%. That’s up from a payout of 78 cents.
The company now expects adjusted non-GAAP profits of $4.07 to $4.27 a share for fiscal 2021, which ends this month. That’s well above the Wall Street consensus of $3.78 a share, and up from an estimated $3.72 a share. The bullish outlook is driven in part by HP’s aggressive stock repurchasing activity.
HP shares advanced 4.5% in premarket trading Thursday to $29.88.
Shares of HP rallied throughout much of the pandemic, as consumers furiously bought new PCs for remote schooling and work. But investors have since worried about a peak in PC demand and what comes next for the company; the stock is down 20% from its May peak.
On Wednesday, HP addressed some of those concerns, noting that the business remains in a better place postpandemic, with increased profitability in the years to come.
The company expects at least $4.5 billion in free cash flow for the year. Under GAAP, or generally accepted accounting principles, HP sees profits of $3.86 to $4.06 a share.
HP’s bullish outlook comes despite the fact that the company expects its printers and PCs to be supply constrained through at least the first half of fiscal 2022.
Myers said HP expects to return 100% or more of free cash flow to shareholders in buybacks or dividends over time, unless the company sees higher return investment opportunities.
From a longer-term perspective, HP expects annual revenue to grow in the 2% to 4% range, with profit growth on a compounded basis of at least 8% over the next three years. Myers said the company expects the company’s PC and printer businesses to both grow roughly in line with the market.
Myers says she sees operating profit margins of 5% to 7% for PCs going forward—slightly higher than the company’s previous forecasts—with print margins in the 16% to 18% range. She said the company expects to grow its dividend rate over time in line with profit growth.
For fiscal 2022, the company sees more than $10 billion in combined revenue from five fast-growing areas: gaming, peripherals, instant Ink, industrial graphics, and 3-D and workforce solutions. All five are expected to grow in double-digits in fiscal 2022.
In a conversation with reporters ahead of the analyst session, HP CEO Enrique Lores noted that the company is much stronger than it was in 2019, when it held its last analyst day.
Over the last four quarters, he said, HP produced 6% growth versus the same period two years ago, prior to the pandemic. He cited a 29% improvement in non-GAAP operating profits, 60% non-GAAP profit growth, and 13% higher free cash flow.
Lores said that in its personal systems business, the company is focusing on both gaming and commercial PCs. He says HP now has more than $2 billion in annualized revenue from gaming PCs and related peripherals.
The total addressable market in personal systems is about $200 billion larger than what the company projected in 2019, Lores added, noting an expanded PC market thanks to the pandemic and a bigger opportunity in both peripherals and services. HP now puts the total addressable PC market at $560 billion, including $110 billion in peripherals, $120 billion in services, and $330 billion in PCs.
In another new disclosure, Lores says HP is now generating about $500 million a year from its Instant Ink printer subscription services, with growth north of 30%. He said the company was planning on expanding Instant Ink from the consumer market into the small and medium-size business market, covering multiple printers and not just individual printer units. And he also disclosed that the company now has about a $2 billion business in industrial graphics.
Write to Eric J. Savitz at email@example.com