Hewlett-Packard Company (HPQ) Earnings Analysis

Maintenance Mode

The company’s annualized rate of change in capital of -3.6% over the past three years is less than its peer median of 12.7%. This below median investment level has also generated a less than peer median return on capital of 1.4% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

Hewlett-Packard reported relatively weak net income margins for the last twelve months (-2.8% vs. peer median of 15.5%). This weak margin performance and relatively conservative accrual policy (14.2% vs. peer median of 6.0%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.

HPQ’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Peers used for analysis of HPQ

We used the following peer-set: Apple Inc. (AAPL), Microsoft Corporation (MSFT), International Business Machines Corporation (IBM), Cisco Systems, Inc. (CSCO), Dell Inc. (DELL) and Lenovo Group Limited Sponsored ADR (LNVGY).

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This article was first published on the CapitalCube Blog, disclaimer