Company Overview 1 Market Statistics TICKER - NYSE: HPQ S&P - PowerPoint PPT Presentation

Company Overview 1 Market Statistics TICKER - NYSE: HPQ S&P &P 500 & & HP Inc. Prices 52 Week Range $10.38 - $17.81 18 2500 Main Features: 16 Avg Daily Vol (3 Mo) 12,524,223 2000 14 Market Value (M) 30,050 12 48.25 Billion Dollars in Revenue • 1500 10 Ent Value (M) 30,598 8 1000 6 Shares Out (M) 1,705 Market Leader in Printing Industry • 4 500 Dividend Yield 3.0% 2 0 0 Indicated Annual Second Largest Market Share in • 0.53 Dividend PC Industry Float 99.9% Institutional 81.3% HP Inc. S&P 500 Top 10 Inst Holders 36.8% Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Recommendation 2 Growth Rates of Net Income and FCFF Key Drivers: 20% Improved Operational Efficiency • Recommendation 10% Lower Overhead Costs due to • 0% Restructuring HOLD 2017 2018 2019 2020 2021 -10% Poised to take Market Leader Position • in the 3D Printing Industry -20% Target Price: $17.78 -30% Net Income Free Cash Flow to Firm Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Business Description 3 1939 1957 Establishment of Hewlett-Packard IPO on NYSE 2015 1947 Restructuring to create HP Inc. and HP Enterprise Incorporation of Hewlett-Packard Printing 38% Global Headquarters in Palo Alto, CA • Personal 62% of Revenue comes from the PC Sector • Systems 62% 38% of Revenue comes from the Print Sector • Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Future Prospects 4 Global 3D Printing Forecast (in billions) Collaboration in Virtual Reality with Oculus Rift and HTC • 25 Potential Boom of 3D Printing • Sprout all-in-one • 20 15 10 5 0 2014 2015 2016 2017 2018 2019 2020 Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Competitive Position

Industry Overview 5 Printer Market Share PC Market Share Personal Systems • Five Year Contraction in PC Market Acer Mimaki Roland • PC Shipments Down 5.7 % in 2016 Market Wide Group 3% Lenov 4% 9% • Saturated Market with Strong Price Apple o 9% Epson Discrimination 28% 21% Asus HP Inc Print 9% 48% • Print Revenue Decreased by 7% YOY in 2016 • Trend Towards Digital Documents Dell • 3D Printing a Growth Prospect Canon HP Inc. 19% 24% 26% Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Competitive Positioning 6 Personal Systems Personal Systems Net Revenue Printing Net Revenue • Converging upon Lenovo for Position as 45 35 Market Leader 40 • Marketing to Attractive Customer Segments 30 35 • Cross-selling a Broad Portfolio of Offerings 25 30 In Billions In Billions • Immersive Computing 25 20 Print 20 15 15 • Government and Educational Contracts 10 10 • Shifting Behavior from Transactional to 5 5 Contractual 0 0 • Graphics Solutions Services which Focus on 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 Digital Print Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

5 Forces 7 Future Outlook as a Whole: Power of Buyers 4 Power of Buyers: No Single Buyer Responsible for more then 10% of Sales 3 2 Existing Power of Power of Suppliers: Canon Produces Components of HP Inc. Printers 1 Rivalries Suppliers 0 Threat of Substitutes: Low Product Differentiation and Price Competition Threat of Threat of Threat of New Entrants: HP Inc. has Formidable Market Power New Substitutes Entrants Existing Rivalry: Within PC Segment Lenovo has Similar Sales Numbers Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Corporate Governance 8 • Executive Compensation Shareholder Threat Rating Share Price and Executive Compensation Shareholder Threat Rating tied to Performance 60 100 • Successfully Executed 4 Largest Corporate Executive 50 3 80 Takeover Management Separation in History Defense 2 40 60 • Management has been able 1 30 to Improve Cost Structures 0 40 20 • Leadership has Articulated 20 10 and Advanced HP Inc.’s 0 0 Strategy to Exploit New 11 12 13 14 15 Income Streams. Board of Rights and Obligations of Directors Share Price Exec Comp Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Financial Analysis

Strong Liquidity and Efficiency 9 • Ability to Offer Products to Consumers at Favorable Days Payable Outstanding Credit 120.0 • Highest Days Payable Outstanding in the Industry 100.0 99 97.7 80.0 Operating Cycle (Days) 2016 2017E 2018E 2019E 2020E 2021E 60.0 69.0 66.0 Days Inventory on Hand 41 43 44 44 45 45 40.0 40.8 + Days Sale Outstanding 34 32 33 33 33 33 20.0 = Operating Cycle 75 75 77 77 78 78 0.0 - Days of Payables HP Inc Canon Inc Xerox Apple Inc Acer Outstanding 99 105 105 104 104 105 Corp Net Operating Cycle -25 -30 -28 -26 -26 -27 Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Capacity for Further Expansion 10 • Cash From Operations Sufficient to Cover Dividend, Debt/EBIT Ratio Interest and Capital Expenditure 6.68 • Potential to Issue More Debt to Fund Investment 4.72 Opportunities 3.51 Cash From Operations Utilization 2.7 2 6000 1.49 Surplus 4000 Dividend 2000 Interest Payment HP Inc Canon Xerox Lenovo Apple Industry 0 Capital Expenditure Inc Corp Group Inc Average 2017E 2018E 2019E 2020E 2021E Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Growing Profit Margins and Stable Dividend 11 • Low Dividend Payout Ratio, Indicating Growth- Dividend Payout Ratio and Net Profit Margin orientation and Potential for Higher Dividends 100% 6% 5% 93.80% 80% • Net Profit Margin Higher than Peers and Expected 4% 60% 3% 62.10% to Increase in the Future 40% 2% 44.40% 34.70% 20% 1% Net Profit Margin 0% 0% 7.2% 8.0% HP Inc Canon Inc Xerox Corp Lenovo 6.5% 6.1% 6.1% 5.7% Group 6.0% Dividend Payout 4.0% Ratio(LHS) 2017E 2018E 2019E 2020E 2021E Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Valuation

Free Cash Flow to the Firm 12 HPQ Earning Per Share and Dividend Yield Percentage Change of Price and FCFF • HP’s Competitors are 4.00 0.60 Unique 2.00 0.40 • Little to no Pure Play 0.00 0.20 • Dividends Independent of -2.00 0.00 Earnings -4.00 -0.20 • FCFF Matches well to -6.00 Historic Firm Valuation -0.40 -8.00 -0.60 12 13 14 15 16 17 12 13 14 15 16 HPQ EPS HPQ Dividend Yield HPQ - Price HPQ - FCFF Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Model Assumptions 13 Projected 5 Year DCF Valuation • 5 Year FCFF Valuation Model with a Terminal Value Year FCFF Discounted FCFF Growth after 2021 1 $2,772 $2,539 -16.6% • WACC of 9.125% 2 $2,696 $2,263 -2.7% 3 $2,828 $2,174 4.9% • Return to Positive Growth Rates in 2020 for Printing 4 $2,891 $2,036 2.2% Segment 5 $3,141 $2,026 8.7% • No Substantial Increases in Tax Rate Terminal $41,606 $26,841 1.5% Value of Firm $37,879 • Cost Improvement of 1.75% Value of Debt $6,758 • No Major Deviations in Shares Outstanding or Value of Equity $31,121 Capital Structure Shares 1750 Per share $17.78 Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Weighted Average Cost of Capital 14 Segment HPE/HPQ Earnings to GDP 50.00% 6.00% • Indicated Annual Dividend is 53 Cents 40.00% 5.00% • Dividend Yield Approximately 3.0% at Target Price 30.00% 4.00% • Current Weighted YTM of Long Term Debt is 2.8% 20.00% 3.00% • Highest Observed YTM is 3.1%, Maturing 2021 10.00% 2.00% • 10 Year U.S. Treasuries Yield 2.5% 0.00% 1.00% -10.00% 0.00% • S&P 500 Average Return of 8.16% -20.00% -1.00% • Beta of 1.43 2001 2006 2011 2016 World GDP HPE Segments HPQ Segments Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Growth 15 Growth Forecasts by Region Growth Forecasts by Analytical Group • Short Term Growth Rates 10 12 Assumed to Remain Negative for Print 5 8 • Expected Return to Growth 4 0 in 2020 for Print 2000 2005 2010 2015 2020 • Terminal Growth Rate at 0 -5 2000 2005 2010 2015 2020 1.5% -4 -10 Advanced economies Africa (Region) Asia and Pacific Emerging market and developing Europe Western Hemisphere (Region) economies Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Implied Intrinsic Value 16 • Base Case $17.78 • Bear Case $16.62 • Bull Case $18.95 • Sensitive to WACC, +2% Share Price $12.08 • Continued Decline, and Zero Terminal Growth $13.25 • No Cost Efficiency, $13.00 Investment Financial Company Competitive Conclusion Valuation Risk Analysis Overview Position

Investment Risk