HP Inc.

The stable outlook reflects our expectation of stable revenue and modest improvement in EBITDA margins for HP over the next two years. We expect S&P Global Ratings-adjusted leverage will rise to the mid- to high-1x area in fiscal years 2020 and 2021 (ending Oct. 31), from below 1x as the company executes its capital return plan. We do not view the plan as a material deviation from current financial policies since our adjusted leverage figure is below 2x and free cash flow to debt is above 30%, providing support at the current rating level. We could consider a downgrade if HP's operating performance is worse than expected and competitive headwinds in printing, including disruption from business model changes, lead to

...Evolving business model adds some operational uncertainty. HP continues to face headwinds in its printing supplies segment (about one-quarter of total revenues, having higher profitability) because of increasing competitive challenges in aftermarket and alternative printing supplies. The company's supplies revenues have declined meaningfully for several quarters, down 7% year over year in the first quarter ended Jan. 31, 2020. Although we view HP's strong global market position favorably as evidenced by leading market shares in print and PCs, its pivot in printing-segment business strategies potentially increases operational risk and the company could lose meaningful revenue and unit market share as a result. We also think the company is likely to face some margin pressures due to declining supplies revenues partially offsetting cost reduction plans underway. We expect the print declines to continue in 2020 while the company implements new hardware and pricing strategies to stabilize print...

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