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Hit Price

28 February 2019 by jbchevrel

HP Inc. (HPQ) 5y CDS is the worst-performer in CDX IG s31, wider +13bp. Not huge in absolute but c20% relative on this spread. In parallel stocks declined c20% (worst in 7 years). This is after HPQ’s warning on printer supplies sales, one of the highest margin products it sells. Weaker demand from €zone can potentially take those sales down -3% yoy. Interestingly another factor into this lower guidance is the fact that people buy those more and more on the internet. And unfortunately for HPQ, its market share is much higher in shops than online, which makes it miss an increasingly high share of the market. Adding to that, Q4 sales missed ($14.7B vs $14.9B exp). Component shortages one of the causes of the miss. HPQ had lost its leadership in PC sales last year (to Lenovo). In terms of credit metrics, not much to mention really. Net debt is sub $1B, as the company sits on $5B of cash. Net debt / EBITDA is sub 0.2x. A conservative management improved HPQ credit profile since 2016, where the wides of this CDXIG veteran member (in since s04!) were above 200bp.