Hewlett-Packard ( HPQ ) will report its fiscal first-quarter numbers after the market close February 22. Analysts expect the company to post earnings of $0.42 per share, compared with $0.38 during the same period last year. HPQ sold off with the overall market during the recent correction, but has regained its footing and is currently up a modest 1.5% for the year.
HPQ was recently trading at $21.56, down $2.54 from its 12-month high and $5.84 above its 12-month low. Technical indicators for HPQ are bullish with a weak upward trend. The stock has recent support above $19.50 and recent resistance below $21.75. Of the 14 analysts who cover the stock, four rate it a “strong buy”, one rates it a “buy”, and nine rate it a “hold”. HPQ gets a score of 66 from InvestorsObserver’s Stock Score Report.
HPQ has really come to life over the last two years, and now that the company has returned to positive earnings growth, the market remains bullish on its outlook. Over the last five years, HPQ experienced annual earnings declines of 20.9%, but things have turned around, and analysts are now predicting the company to grow its earnings by 6.9% per annum over the next five years, and by 9.7% for the current year. The stock ran into selling pressure with the overall market during the recent correction, but the dip in share price brought the stock’s P/E down to a very reasonable 14.6, which should attract value hunters and push shares higher barring a huge earnings miss for the company’s fiscal first-quarter. The company has consistently reported earnings that were either in-line or a penny or two above the consensus over the last several years, while posting better than expected sales for six straight quarters. If the company is able to once again post earnings basically in-line for profits while beating on the top line, there is plenty of upside potential given the current valuation. HPQ trades at $21.64, with an average price target of $24.14.
Stock Only Trade
If you’re looking to establish a long stock position in HPQ, consider buying the stock under $21.75. Sell if it falls below $19.50 or take profits if it gets to $25.00.
If you want a bullish hedged trade on the stock, consider an April 15/19 bull-put credit spread for a 25-cent credit. That’s a potential 6.7% return (38.6% annualized*) and the stock would have to fall 11.0% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider an April 23/28 bear-call credit spread for a $0.25 credit. That’s a potential 5.3% return (30.5% annualized*) and the stock would have to rise 7.5% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a May $21.00 covered call. Buy HPQ shares (typically 100 shares, scale as appropriate), while selling the May $21.00 call for a debit of $20.15 per share. The trade has a target assigned return of 4.1%, and a target annualized return of 16.5% (for comparison purposes only).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com
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