H-P Earnings, Charts May Be Biggest Tell (HPQ, IBM, DELL, INTC)

We are expecting the key earnings report from Hewlett-Packard Company (NYSE: HPQ) after the close of trading today.  This should mark the 30th DJIA component reporting earnings this season.  Because of the EDS buyout, H-P is no longer just a competitor of Dell Inc. (NASDAQ: DELL).  This deal puts it against IBM (NYSE: IBM) on the services business, and therefore this report can impact either competitor (or both).  We have recently heard some stability comments from IBM over the last two weeks on the services business, so the market will not want to hear anything less than that on the services side.  On the PC-side of the operations we have heard a “ditto” on the bottoming out of the PC cycle from Intel Corporation (NASDAQ: INTC),  so any deviation from that notion will not be well received.

Thomson Reuters has estimates pegged at $0.86 EPS on $27.4 billion in revenues.  For its Q3-2009 report, those estimates are $0.89 EPS and $27.49 billion.  For the Fiscal-2009 (October), the H-P estimates are $3.71 EPS and $113.46 billion in revenues.

As far as what H-P guided to before, this is as follows:

• Second quarter FY09 GAAP diluted EPS is expected to be approximately $0.70 to $0.72.
• Non-GAAP diluted EPS is expected to be approximately $0.84 to $0.86; non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.14 per share, related primarily to the amortization of purchased intangibles and restructuring charges.
• Full year FY09 revenue will decline approximately 2% to 5% from the prior-year period.
• Full year FY09 GAAP diluted EPS is expected to be approximately $3.19 to $3.31, and non-GAAP diluted EPS is expected to be approximately $3.76 to $3.88. FY09 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.57 per share, related primarily to the amortization of purchased intangibles and restructuring charges.

The actual move from its last earnings is going to be hard to compare on a direct apples to apples basis because its last earnings report was released after the close on February 18 when the markets were in chaos with no recovery.  As you will recall, the market continued to make every long investor commit hari kari for another three weeks after the last report.  That being said, shares were at $33.98 on the close of February 18 and fell to $31.30 the following day; and H-P’s lowest close was $25.53 in March.  After a 1% gain today, the stock is at $36.10.  The 52-week range is $25.39 to $49.20.

There is a very interesting notion here that may become vital for investors going forward.  The 50-day and 200-day moving averages are in the long process of converging in on each other.  The 50-day is $33.52 and the 200-day is $36.82.  The stock has also traded up against the 200-day moving average at slightly higher prices at the end of April and again at the start of May.  But it did not break through and sold off with the market.  As far as the 50-day moving average, H-P has been above this since the start of April.  The stock appears to have been stuck while it waits for today’s news.  That being said, a break above the 200-day moving average of $36.82 might make a clear mark into new territory as long as the stock can get above the old high levels of late April and early May.  Those levels are as follows: $37.14 high close (key), and the two intra-day highs to watch are $37.24 and $37.40.

We looked over the options prices, and so far it seems as though options traders are only expecting a move of up to $1.45 to $1.55 in either direction.

JON C. OGG
MAY 19, 2009