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Bank of America sends warning on HP stock before earnings

HP Inc. is heading into fiscal third-quarter earnings with signs that its PC business is gaining ground, while Bank of America remains firmly bearish on the stock.

HP Inc. (HPQ) will report results for the quarter ended July 31 after the market closes on Aug. 26, with its earnings call scheduled for 5:30 p.m. EST. The report gives investors another look at whether improving PC demand can offset growing pressure on costs and profitability.

In a note given to TheStreet, BofA analyst Wamsi Mohan reiterated an Underperform rating and $18 price objective on HP. The target implies roughly 40% downside from the $29.96 share price cited in the Aug. 19 report. Mohan expects fiscal 2026 guidance to remain unchanged, while warning that pressure on Personal Systems margins could intensify before conditions improve.

BofA expects HP’s Personal Systems revenue to rise about 8% year over year and 5% sequentially in the third quarter, helped by pricing, steady demand, and market-share recovery. Preliminary industry data cited by the bank showed HP recovering worldwide PC share in the second calendar quarter after losing roughly 130 basis points sequentially in the first quarter.

The bank also sees HP’s U.S. share improving by about 520 basis points sequentially and 40 basis points from a year earlier. That recovery gives HP a stronger top-line setup heading into earnings, though BofA’s estimates suggest the benefit may not flow through to earnings at the same pace.

HP’s PC recovery may not be enough

HP’s latest results give some support to the demand side of BofA’s call. Personal Systems revenue rose 13% year over year to $10.2 billion in fiscal Q2, with commercial revenue up 14% and consumer revenue up 10%. Total unit shipments still fell 7%, while Personal Systems operating margin reached 5.2%.

Higher selling prices helped HP offset some of that weakness in volume. HP’s quarterly filing showed Personal Systems average selling prices rose 22.3% year over year, driven by pricing actions, currency effects and a shift toward higher-value systems, while PC unit volume declined 7%.

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BofA expects that trade-off to become increasingly important. The bank forecasts Personal Systems operating margin falling to 4.3% in fiscal Q3 and then to 3.9% in Q4, which Mohan views as the likely trough.

Higher memory costs, a heavier mix of consumer PCs, and pricing that lags rising component costs are expected to pressure profitability. BofA expects some of those pressures to begin normalizing during the first half of fiscal 2027.

In a note given to TheStreet, BofA analyst Wamsi Mohan reiterated an Underperform rating and $18 price objective on HP.

Cheng Xin via Getty Images

Printing adds another margin problem

Printing could create another challenge for HP. BofA expects fiscal Q3 Print margins near the low end of HP’s long-term 16% to 19% range because of hardware mix and higher commodity costs, including oil and resin.

The bank expects Print margin to improve to about 17.5% in the fourth quarter. That would still leave another part of HP’s business working through cost pressure as Personal Systems margins approach their expected low point.

BofA forecasts fiscal Q3 revenue of $14.59 billion, slightly ahead of the $14.55 billion consensus estimate cited in its report. Its $0.63 non-GAAP EPS estimate trails the $0.67 Street estimate, highlighting the margin pressure at the center of Mohan’s bearish thesis.

BofA keeps a low target on HP stock

For fiscal 2026, BofA expects $2.97 in EPS compared with its cited Street estimate of $3.03. The bank values HP at six times its calendar 2027 EPS estimate of $3.06 to reach its $18 price target.

Leadership uncertainty remains another overhang. HP appointed board member Bruce Broussard interim CEO in February after Enrique Lores stepped down, while the board formed a search committee and retained an executive search firm to identify a permanent successor.

With PC demand improving, HP has a better revenue setup heading into earnings. BofA’s warning centers on what happens further down the income statement, where rising costs and weaker margins could keep pressure on earnings even as the company’s largest business regains momentum.

Related: Bank of America sends tough message on HP stock

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