Credit BuyNYSE: HPQ4.20% Sr. Unsec. 2032Baa2/BBB/BBB+OAS: 77bpsOct 30, 2025

HP Inc. — Fixed Income Credit Analysis

Defensive BBB carry with upgrade optionality: ~20bps wide to Dell despite lower leverage, and positive total return in every spread scenario.

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Investment Thesis

HP Inc.'s 4.20% senior unsecured notes due April 2032 offer defensive carry and moderate roll-down within the BBB-rated technology hardware sector. At a current OAS of 77bps, the bonds are fairly valued to slightly tight versus the BBB Technology BVAL curve at the 10-year tenor, reflecting HP's stable fundamentals and strong liquidity rather than mispricing.

This is a defensive carry trade with upgrade optionality. Bloomberg horizon analysis (HZ1, 11-month horizon) shows a 4.4–5.4% total return across spread-tightening, unchanged and widening scenarios — positive in every case. Downside protection comes from carry (4.3%), stable BBB fundamentals, and ample liquidity. Net leverage path to ~0.99× by FY27 provides BBB-to-BBB+ upgrade optionality not priced into current OAS.

Strong Liquidity — Defensive Anchor

HP holds $2.9B cash and a $5B undrawn revolving credit facility with no near-term maturities. Gross leverage near 2.0× EBITDA, supported by $2.5–3.0B annual FCF. Management maintains a stated low-2× leverage ceiling, fully funding distributions from internal cash flow. This structural liquidity makes credit deterioration unlikely absent transformative and debt-funded acquisition.

Leverage Path Supports Upgrade Optionality

Net leverage of 1.46× is already below management's stated 2× ceiling. As Personal Systems drives recovery (AI-PC refresh, Windows 10 EoL migration, enterprise upgrades), we project net leverage falling toward ~0.99× by FY27. This trajectory creates asymmetric spread compression potential not priced into current OAS positioning.

Relative Value: Fair-to-Tight at 10-Year Tenor

HP's BVAL curve tracks BBB Technology and BBB Composite benchmarks through 5–9 years, trading slightly through (tighter than) the BBB Tech curve at ~10 years (≈ −8bps). Only beyond 10 years does HP's curve rise above benchmarks (~+10–15bps). At the 2032 tenor, the bond is fair-to-slightly rich — but the carry profile and credit improvement outlook support continued tight trading.

Relative Value: Wide to Peers on Lower Leverage

HPQ 4.20% '32s trade near a 117bps Z-spread — ~20bps wide to Dell (97bps) and ~17bps wide to Marvell — despite lower leverage (1.7× vs. 2.1× and 3.8×), stronger liquidity and more predictable free cash flow. Continued deleveraging supports 10–15bps of tightening relative to Dell.

Credit Metrics Trajectory

Metric ($MM)	FY23A	FY24A	FY25E	FY26E	FY27E
Revenue	53,718	53,559	55,121	55,029	54,970
EBITDA	4,306	4,648	4,299	5,245	5,240
Free Cash Flow	2,962	3,157	1,322	4,534	2,934
Debt / EBITDA	2.34×	2.16×	2.07×	1.60×	1.41×
Net Debt / EBITDA	1.59×	1.46×	1.69×	1.10×	0.99×
Interest Coverage	8.30×	8.62×	9.09×	11.09×	11.08×

Bond Statistics

Parameter	Detail
Security	HPQ 4.20% due 04/15/2032
Price	$97.63
YTW	4.63%
OAS	77bps
Modified Duration	5.55 years
Convexity	0.36
5-Year CDS	60bps
Rating (Moody's/S&P/Fitch)	Baa2 / BBB / BBB+
Outlook	Stable / Stable / Stable
Total Return (horizon, all scenarios)	4.4–5.4%

Full Credit Report — HP Inc. (HPQ)

16 pages · Finance 640: Intro to Credit Trading · October 30, 2025

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