Slowing demand for PCs will limit HP’s upside, Citi says

Slowing consumer demand for PCs will mean limited upside for HP from here, according to Citi. Analyst Jim Suva downgraded HP to neutral from buy, saying in a Monday note that a higher inflationary environment is expected to moderate sales of laptops and desktops in the near to mid term. “[C]hallenging PC shipment growth and higher freight costs are likely to limit operating income growth and EPS upside here in FY22 as Personal Systems segment was a key driver of operating income growth in FY22E,” Suva wrote. Citi also trimmed the price target to $38 from $40. The new price target is nearly 10% above where shares closed Friday. Citi cheered HP’s strong capital allocation program and its fiscal first quarter performance. Shares of HP particularly benefitted this year from an endorsement from Warren Buffett, who disclosed 121 million shares in the company last month. Analysts also continue to see HP as a strong cash flow generator. Still, supply challenges remain an overhang on the stock, especially as Chinese consumers remain under pressure to choose domestic alternatives for PCs. China represents about 8% of PC unit sales for HP, according to Citi. “While valuation levels are not stretched at current levels, we believe upside remains limited given moderation in PC demand and continued supply challenges in Print. We do not believe a Sell rating is warranted given HPQ’s ~3% dividend yield, and strong FCF yield,” Suva wrote. Shares of HP declined more than 2% in Monday premarket trading. –CNBC’s Michael Bloom contributed to this report.