HP (NYSE: HPQ) posted its latest quarterly report on Nov. 22. For the fourth quarter of fiscal 2022, which ended on Oct. 31, the PC and printer maker's revenue declined 11% year over year to $14.8 billion but still beat analysts' estimates by $120 million. Its adjusted earnings dropped 10% to $0.85 per share but also cleared the consensus forecast by a penny.

HP didn't provide any top-line guidance, but it expects its adjusted EPS to shrink 27%-36% year over year in the first quarter of fiscal 2023 and to slide 12%-22% for the full year. Both those estimates missed Wall Street's expectations and indicated the post-pandemic deceleration of the PC market would drag on for at least a few more quarters.

However, HP also unveiled a new "Future Ready Transformation Plan" which aims to streamline its business by fiscal 2025. Could that ambitious plan breathe fresh life into its stock over the next three years?

What is HP's Future Ready Transformation Plan?

During the conference call, CEO Enrique Lores said the company's Future Ready Transformation plan would generate significant savings through its "digital transformation, portfolio optimization, and operational efficiency" strategies. 

As for its portfolio optimization, Lores expects HP to "zero in on businesses" where it can "drive significant competitive advantage and market leadership" as it simplifies its portfolio. Specifically, Lores expects HP to roll out fresh products for the higher-growth hybrid work, gaming, industrial graphics, and 3D printing markets, but gradually reduce its total number of unique models for the PC market. Lores also wants HP to expand its subscription-based ecosystem beyond its Instant Ink service with a new "device as a service" platform for hybrid workers, as well as subscriptions for paper and printing hardware. 

In terms of operating efficiency, Lores believes HP can generate $1.4 billion in annualized gross run rate cost savings by fiscal 2025 by "driving efficiencies, simplifying organizational structure, and removing unnecessary costs." As part of that restructuring, HP plans to reduce its headcount by 4,000-6,000 (7%-10% of its current workforce) by the end of fiscal 2025.

However, HP also expects to incur $1.0 billion in expenses from those restructuring efforts over the next three years. HP plans to temporarily reduce its buybacks in the "near term" to protect its balance sheet throughout that transition.

Will this sweeping plan stabilize HP's business?

HP's plans aren't that surprising. However, it will still likely endure a painful slowdown throughout fiscal 2023. HP's revenue has already declined year over year for two consecutive quarters, and its growth won't accelerate again anytime soon. During the call, Lores predicted that global PC sales would decline 10% next year and return to their pre-pandemic levels.

That's a bit gloomier than other industry forecasts. For example, IDC estimates that PC and tablet sales will decline 2.6% in calendar 2023 before returning to growth in 2024. Between 2022 and 2026, the research firm expects the market to expand at an anemic CAGR (compound annual growth rate) of 0.8% as the industry moves past the pandemic.

But a soft PC market isn't HP's only problem. Its printing business will likely remain hobbled by long upgrade cycles, paperless offices, and competition from generic ink and toner suppliers. HP might offset some of that pressure by expanding its newer 3D and metal printing business, but it still generates most of its printing revenue from the consumer and enterprise markets.

Looking ahead, HP's fiscal 2023 will likely be defined by declining revenue and aggressive cost-cutting measures. Over the following two years, its revenue might grow in the low-single-digits again (assuming the PC and printing markets stabilize amid milder macro headwinds), while its adjusted EPS might start rising by the double digits again as its savings kick in.

Where will HP's stock be in three years?

At $30 per share, HP trades at a mere nine times the midpoint of its adjusted EPS forecast for fiscal 2023. It also just raised its annual dividend by 5% to $1.05 per share, which translates to a forward yield of 3.5%. That low valuation and high yield should limit its downside potential as the bear market drags on. But the bear market probably won't last for three more years -- so HP's stock could easily stagnate as a new bull market drives investors toward higher-growth stocks again.

Therefore, I believe HP's stock could remain stable or rise slightly over the next three years, but it will still likely underperform the market. Its "Future Ready" plan is a step in the right direction, but it's simply not that appealing when other blue tech stocks like Cisco (NASDAQ: CSCO) are generating superior revenue and earnings growth while paying comparable dividends.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems and HP. The Motley Fool has a disclosure policy.

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