HP Inc and CDW Downgraded to Neutral by Citi Due to Cautious Outlook on PCs

Citi analysts have downgraded HP Inc. and CDW Corporation from Buy to Neutral, citing concerns about the delayed recovery of the PC market in the second half of 2024.

Recent evaluations of the PC landscape have indicated that the anticipated refresh cycle for PCs may take longer than expected due to macroeconomic uncertainties and extended security patches for Windows 10. This could push the demand recovery further into 2026 and 2027.

In their assessment of HP Inc., Citi pointed out that challenges in the printing sector continue, particularly due to aggressive pricing for hardware. Additionally, persistent economic struggles in China may hinder any positive revisions to future earnings estimates.

While analysts acknowledged HP’s ongoing cost-cutting measures, which support margins and earnings recovery, they believe these efforts alone will not lead to a significant increase in the company’s valuation in the near future. They noted, “While we believe continued cost-takeout efforts are supportive of margins and earnings recovery ahead, the above pressures should temper near-term valuations from historical highs.” Consequently, they downgraded HP to Neutral from Buy, setting a price target of $37 for the stock.

Regarding CDW, Citi has expressed caution about the company’s growth prospects in light of a subdued North American IT spending environment, which is likely to limit near-term earnings revisions. Although IT spending is expected to improve by 2025, the company’s investment focus on operating expenses in solutions and services may reduce operating margin leverage and potential for earnings per share growth.

Citi has lowered its price target for CDW to $245 per share. They noted that with the stock currently trading at around 20 times its projected earnings for 2026, which is in line with its five-year median, the risk-reward scenario appears balanced.

Overall, Citi believes that both HP Inc. and CDW Corporation face limited short-term upside due to persistent macroeconomic challenges and a delayed recovery in the PC market, leading to their downgrade to Neutral.