HPQ HP Inc.
Cash-harvesting hardware incumbent priced roughly at fair value; margin recovery is the only real upside lever.
The story
HP is a mature PC and printing franchise: PCs are a low-margin, cyclical share game, and the print-supplies annuity, still its profit engine, is shrinking slowly as offices go paperless. An AI-PC refresh cycle gives a near-term revenue lift, but tariffs and memory-cost inflation are squeezing margins. HP is in late-life harvest mode, returning cash through dividends and buybacks rather than reinvesting for growth.
Low-single-digit growth fades to zero over a short 5-year horizon because print keeps declining while PC demand is flat to slightly up. Margins recover partway from the depressed 5.5% TTM back toward HP's historical 7% range as cost programs offset tariffs, but not to peak levels. High sales-to-capital fits an asset-light business, and beta sits near the hardware anchor.
Value drivers
| Revenue growth (Y1) | 2.0% |
| Terminal growth | 0.0% |
| Forecast horizon | 5y |
| Target operating margin | 6.8% |
| Years to target margin | 3 |
| Sales-to-capital | 6.00 |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 9.3% |
| Terminal WACC | 9.0% |
Valuation bridge
| PV of explicit FCFF | 14.23B |
| PV of terminal value | 28.68B |
| Equity value | 36.20B |
| ÷ shares → per share | $40.14 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 60.35B | 2.0% | 6.0% | 3.41B | 197.21M | 3.21B | 2.94B |
| 2 | 61.25B | 1.5% | 6.4% | 3.70B | 150.86M | 3.55B | 2.97B |
| 3 | 61.86B | 1.0% | 6.8% | 3.99B | 102.08M | 3.89B | 2.98B |
| 4 | 62.17B | 0.5% | 6.8% | 4.01B | 51.55M | 3.96B | 2.77B |
| 5 | 62.17B | 0.0% | 6.8% | 4.01B | 0 | 4.01B | 2.57B |
Key risks
- Print supplies decline accelerates, or third-party cartridges take share
- Tariffs and DRAM/NAND cost inflation keep compressing PC margins
- Leverage limits buybacks if free cash flow weakens
Catalysts
- Windows 10 end-of-life and AI-PC commercial refresh cycle
- Future Ready cost savings restoring margins toward 7%