Worries about PC demand have failed to put pressure on HP and Western Digital in recent weeks.
Earnings estimates for HP remained stable despite China’s decision to push foreign PCs out of government agencies and state firms.
Western Digital stock has recently received a boost from activist investor Elliott Management.
While many traders were worried about declining PC demand after the end of the acute phase of the coronavirus pandemic, some computer hardware stocks managed to show strength despite general market weakness. Importantly, these stocks continue to trade at attractive valuation levels.
Western Digital rallied at the end of May after activist investor Elliott Management stated that the stock could reach $100 by the end of 2023 and offered $1 billion of incremental equity capital into the Flash business at an enterprise value of $17 to $20 billion.
Elliott Management believes that this incremental capital could be “utilized either in a spin-off transaction or as equity financing in a sale or merger with a strategic partner”.
The presence of an activist investor often helps the stock, so it’s not surprising to see that Western Digital got a material boost. It’s just the beginning of the story so traders should expect that more information would become available in the upcoming weeks and months.
Meanwhile, analyst estimates keep moving higher, and the company is expected to report earnings of $9.23 per share in the next year. Thus, the stock is trading at less than 7 forward P/E, which is cheap.
HP stock has recently moved closer to yearly highs. Analyst estimates have been mostly stable in recent months, and the stock is currently trading at 9 forward P/E.
China has recently decided that foreign PCs should be kicked out of government agencies and state firms, which may hurt HP sales. Foreign PCs should be replaced with domestic ones within two years, so it remains to be seen whether HP sales will suffer an immediate blow.
Analysts have mostly ignored China’s move, and their estimates for 2023 remained stable. Meanwhile, the market is focused on the company’s attractive valuation so HP stock may gain solid upside momentum in case it manages to settle above the psychologically important $40 level.
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This article was originally posted on FX Empire