HP Inc & CDW cut to Neutral at Citi on cautious view of PCs

Investing.com -- Citi analysts downgraded HP Inc. (NYSE:HPQ ) and CDW Corporation (NASDAQ:CDW ) to Neutral from Buy in a note Tuesday, citing concerns over the delayed PC market recovery in the second half of 2024.

The firm’s recent checks on the PC ecosystem revealed that the expected PC refresh cycle is likely to be extended due to macroeconomic uncertainties and the extension of security patches for Windows 10, which may push demand recovery further into 2026 and 2027.

Regarding HPQ, Citi noted that “print headwinds persist in aggressive hardware pricing,” while continued macro weakness in China may limit future positive estimate revisions.

The analysts also acknowledged the company’s ongoing cost-cutting efforts, which are supportive of margins and earnings recovery, but they believe these measures will not be enough to drive a significant valuation boost in the near term.

"While we believe continued cost-takeout efforts are supportive of margins and earnings recovery ahead, the above pressures should temper near-term valuations from historical highs," they stated.

“We downgrade HP to Neutral from Buy given limited upside potential near term,” they wrote, maintaining a $37 price target on the stock.

For CDW, Citi is cautious about the company’s growth prospects amid a “more muted North American IT spending environment,” which will likely cap near-term estimate revisions.

While the firm expects IT spending to improve by 2025, the company’s focus on operating expense investments in solutions and services may “temper operating margin leverage and EPS upside potential.”

Citi reduced its price target for CDW to $245 per share, stating that “with the stock currently trading at ~20x PE on CY26 EPS estimates (in-line with its 5-year median), we view current risk-reward levels as balanced.”

Citi believes that both HPQ and CDW face limited upside in the near term due to ongoing macroeconomic headwinds and a delayed PC market recovery, prompting the downgrade to Neutral.

Source: Investing.com