HP Inc and CDW to Neutral at Citi from cautious outlook on PCs by Investing.com

Investing.com — Citi analysts downgraded HP Inc. (NYSE: ) and CDW Corporation (NASDAQ: ) to Neutral from Buy in a note on Tuesday, citing concerns about the delayed recovery of the PC market in the second half of 2024.

The company’s recent checks on the PC ecosystem showed that the expected PC refresh cycle is likely to be extended due to macroeconomic uncertainties and the rollout of security patches for Windows 10, which could push demand recovery further into 2026 and 2027.

On HPQ, Citi noted that “aggressive hardware pricing remains headwinds,” while continued macro weakness in China may limit future upward revisions to estimates.

Analysts also acknowledged the company’s ongoing cost-cutting efforts, which are supporting margins and earnings recovery, but believe these measures will not be enough to generate significant valuation growth in the near term.

“While we believe continued cost recovery efforts are supportive of margins and future earnings recovery, the above pressures should temper near-term valuations from historic highs,” they said.

“We downgrade HP to Neutral from Buy given limited near-term upside potential,” they wrote, maintaining a $37 price target on the stock.

For CDW, Citi is cautious about the company’s growth prospects amid a “more muted IT spending environment in North America,” which will likely limit near-term estimate revisions.

While the firm expects IT spending to improve through 2025, the company’s focus on operating expense investments in solutions and services may “moderate operating margin leverage and EPS growth potential.”

Citi lowered its price target for CDW to $245 per share, saying “with the stock currently trading at ~20x PE on CY26 EPS estimates (in line with its 5-year median), we view current risk-reward levels as being balanced. “

Citi believes that both HPQ and CDW face limited near-term growth due to ongoing macroeconomic headwinds and a delayed recovery in the PC market, prompting the downgrade to Neutral.