HPQ is Leading the Way

Hewlett-Packard Quarterly Earnings Estimates & Price Target

Q2 Rev Est.:  $30.78 Bil

Q2 EPS Est.:  $1.09

Q3 Rev Est.:  $30.80

Q3 EPS Est.:  $1.10

Figure 1

Income Statement
Three months ended April 30, 2010
Net Revenue	$30,777
Costs & Expenses:
Cost of Sales	$23,614
R&D	$708
SG&A	$3,027
Amortization	$384
In-process R&D Charges	$0
Restructuring	$85
Acquisition-Related Charges	$49
Total	$27,866
Earnings from Operations	$2,910
Interest and Other, Net	-$195
Earnings before Taxes	$2,715
Provision for Taxes	$507
Net Earnings	$2,208
Non-GAAP Adj.	$517
Non-GAAP Adj. for Taxes	-$167
Non-GAAP Net Earnings	$2,558
Diluted EPS	$1.09

Hewlett-Packard Company (“HPQ”) will report second-quarter earnings after the market close on Tuesday, May 18^th.  Current Street consensus for the quarter includes revenue and EPS expectations of $29.81 Bil and $1.05, respectively.  Both of these figures are below my estimates of $30.78 Bil and $1.09/share.  Similarly, when looking further into the future, analysts are currently predicting Q3 revenue of $29.77 Bil with an EPS of $1.06, whereas I am expecting $30.80 Bil in revenue and $1.10 in earnings.  If actual Q2 earnings confirm my estimates, share prices could see a nice bump upward. 

Once again, regression modeling was used to create the quarterly revenue predictions.  When creating revenue models, I always back-test them against the prior quarter to ensure their accuracy.  After this is completed, I then input any new available data into the models to arrive at the overall estimates.  Of the five forms of regression utilized for HPQ, the results were weighted to arrive at $30.78 Bil for Q2.  Below, I’ve included a little more detail into the composition of the quarterly projections for Q2 and Q3.

Figure 2

Q2 Prediction			Q3 Prediction
Model	Prediction		Model	Prediction
First-Order	$31,872.2		First-Order	$32,163.6
CFO	$31,760.3		Deasonal	$30,696
Deasonal	$31,359		Dummy	$30,794
Dummy	$31,042		Lagged	$29,509
Lagged	$28,894		AVERAGE	$30,791
AVERAGE	$30,777

1-Year Price Target

$56.06

The method I utilized to create this price target was the P/E approach.  First, I divided the current market price by the sum of the past three quarterly EPS figures and my Q2 estimate to arrive at a P/E of 13.44.  Next, I multiplied 13.44 by my estimate for full-year 2010 earnings.  The result was a one-year price target of $56.06.  I would like to note; however, that I used GAAP EPS figures and estimates in my calculations and not the publicized Non-GAAP figures.

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Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
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