Barclays Downgrades HP, Ingram On Currency Pressure

The downward pressure on IT product pricing resulting from a slide in the euro over the last week has sparked a downgrade on Hewlett-Packard and Ingram Micro from the investment research arm of Barclays.

Barclays U.S. IT Hardware Analyst Ben Reitzes Thursday downgraded both HP and Ingram Micro from overweight to equal weight, and lowered the price target for HP from $42 to $35 and Ingram from $29 to $26.

HP shares were trading up less than 1 percent, or 10 cents, to $32.71 in midday trading. Ingram shares were trading down 3 percent, or 77 cents, to $22.70 in midday trading.

[Related: HP Shares Slide In After-Hours Trading On 5 Percent Sales Drop, Currency Issues ]

Both HP and Ingram, which derive the majority of their sales overseas, have been hit hard by the sliding euro, which negatively impacts international sales and profits for U.S.-based companies. The euro is down 24 percent versus the dollar year-over-year and down 5 percent since March 1.

The move in currencies means the "repricing" of many "transactional products like PCs, servers, printers, supplies, etc. needs to be redone and rethought," said Reitzes in a research note.

Reitzes said $12 billion solution provider behemoth CDW is "largely immune because it is over 90 percent U.S.-based and its execution has been a standout in the IT sector."

What's more, Reitzes said Apple also stands out with regard to its ability to weather the euro slide because of its "historic iPhone6/6 plus cycle and the launch of the Apple Watch."

The Barclays report marks the third time in the last six months the company has cited the impact of a weak euro for IT hardware companies.

"While downside could be limited, we still think it's prudent to lower our ratings for HP and Ingram Micro to EW (Equal Weight) given this phenomenon could keep them range-bound," said Reitzes.

Even though a strong server cycle where "HP has the dominant x86 market position could mitigate some of the downside, recent datapoints in HP's PC, IT services and printers more than offset," said Reitzes.

As for Ingram Micro, Reitzes said, the world's largest IT product distributor "now faces a scenario where a strengthening U.S. dollar and sudden pricing pressure in Europe could almost completely mask any cost savings benefits" from the company's $80 million to $100 million restructuring program. "In this environment, we see a difficult setup for shares to outperform," Reitzes wrote.

Reitzes said IBM also is likely to see an even bigger currency hit. What's more, he said, NetApp could have a "bigger incremental" hit than EMC. Further, Reitzes expects Tech Data, Lexmark and Xerox to have "more material disclosures to the downside."

The top executive for an HP enterprise partner, who did not want to be identified, said he views the currency pressure overseas as a non-issue for U.S. solution providers.

"Currency exchange rates go up and down and there are ways to hedge for it," he said. "Sometimes it creates a tailwind and other times a headwind. Nobody talks about it when it is a tailwind. It's going to make U.S. goods more expensive internationally. But at the end of the day, it will spring back over time."

PUBLISHED MARCH 12, 2015