$HPQ Fiscal Q1 Cheat Sheet

by Dan February 20, 2014 2:48 pm • Commentary

Event:  HPQ reports their fiscal Q1 tonight after the close, the options market is implying a one day move of about 8.5% vs the 4 qtr avg of about 12.5% and the 8 qtr avg of about 10%.

Sentiment:  Despite the stock’s massive gains in 2013, Wall Street analysts remain very neutral on the stock with 11 Buys, 22 Holds and 2 Sells with an avg 12 month price target of about $30, where it currently trades.   While the stock has risen and analyst have been on the sidelines, shorts have been taken to the woodshed and have obviously covered as short interest sits at only 2% of the float, down significantly in the last year.

Technicals:  The 5 year chart below is quite fascinating to be very honest.  For those of you who believe in this sort of the thing, the last 2 and half years could represent a textbook head and shoulders bottom, with $30 being the neckline and massive resistance, that if it gets through could yield much higher highs.  On the flip side, the 2011 breakdown below $30 was significant and it would likely take a beat and a raise of forward guidance to bust through.

HPQ 5 yr chart from Bloomberg
HPQ 5 yr chart from Bloomberg

Options Open Interest:  The put call ratio of all outstanding options is nearly 1 to 1, which has also been the case over the last month and today on average.  The single largest open lines are 29k of the Jan15 17 puts, 20k of the Feb 29 puts, 19k of the Feb 27 puts, 17k of the Jan15 22 puts, 16k of the jan15 calls, 15k of the Feb 30c alls and 14k of the Feb 29 calls.

Volatility SnapShot: While Implied Vol is elevated as one would expect into earnings, it has not reached levels of prior earnings announcements.  One reason for vol being a bit more subdued heading into the print is that the company twice gave FY14 guidance in the last few months that should leave some of the mystery out of the event.  Regardless IV should drop close to 10 points following the event.

HPQ 2 year chart of 30 day at the money implied vol from Bloomberg
HPQ 2 year chart of 30 day at the money implied vol from Bloomberg

Expectations From Bloomberg:

  • 1Q adj. EPS est. 84c (range 82c-87c); Nov. 26, HPQ forecast 82c-86c
  • 1Q rev. est. $27.2b (range $26.2b-$28b)
  • 1Q gross margin est. 22.7% (range 21.9%-23.5%)
  • 2Q adj. EPS est. 89c (range 85c-94c)
  • FY14 adj. EPS est. $3.66 (range $3.41-$3.81); Nov. 26, HPQ forecast $3.55-$3.75

NOTE: Oct. 9, at analyst day, HPQ said sees FY14 rev. decline moderating from FY13 and sees FY14 FCF $6b-$6.5b