12:00 PM EDT, 05/30/2024 (MT Newswires) -- HP (HPQ) remains a "positively skewed way" to play a recovery in the personal computer market, Morgan Stanley said in a note Thursday.

PCs are now experiencing year-on-year growth, but "[p]rint stabilization remains the final hurdle to a more material stock re-rating," Morgan Stanley said.

The company beat Morgan Stanley's Q2 revenue expectations by 4%, with PCs and Print both outperforming. Commercial PCs led the strong PC results, and print services are expected to exceed seasonal trends in the second half, Morgan Stanley said, adding that "Print [operating profit margins] above [management's] [long-term] 16-19% range are impressive, but Print [revenues] need to stabilize to drive move material stock re-rating."

Despite optimism for print's trajectory in the second half of the fiscal year, challenges remain, and Morgan Stanley forecasts a slight decline in total print revenue for 2024. While lower buybacks in Q2 raise questions, management's commitment to future buybacks is integral to its outlook, with potential significant contributions to EPS expected.

Morgan Stanley maintained its overweight rating on HP and raised its price target to $37 from $36.

"Looking forward, we see the turning of the hardware cycle and accelerating capital returns as key drivers of outperformance over the next 12 months," Morgan Stanley said.

Price: 38.41, Change: +5.61, Percent Change: +17.10