HP's (HPQ) updated fiscal 2026 outlook remains too optimistic in two key areas - PC pricing power and memory cost inflation - even after the company trimmed its guidance, Morgan Stanley said in a note on Wednesday.
The company posted a solid fiscal Q1, hitting the high end of guidance and in line with Morgan Stanley's expectations, with growth stemmed partly from "PC pull-forward" in anticipation of future price hikes, according to the note.
HP lowered its outlook for PC shipment dropping in 2026, but raised its revenue growth forecast for Personal Systems, implying that price hikes will more than offset the fewer units sold, Morgan Stanley analysts said. They also noted that the company is assuming only 115% in memory cost inflation for the year, far below the analysts' projections. The analysts pointed to the fact that NAND flash memory and DRAM prices surged 70% to 100% in Q1 alone.
HP is also without a permanent chief executive officer currently, adding to the existing challenges, the note said.
The analysts slashed their fiscal 2026 EPS estimate to $2.51 from $2.74 and free cash flow to $2.5 billion from $2.7 billion. The figures are 15% to 18% below HP's guidance midpoint and 16% to 19% below consensus.
Morgan Stanley maintained the company's stock rating at underweight and lowered the price target to $16 from $18.
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