Hewlett Packard

Hewlett Packard to Acquire Silver Peak for $925 Million; Target $13.00 in a Best-Case Scenario

Hewlett Packard Enterprise Co, an American multinational information technology company based in California, announced to acquire the global SD-WAN leader Silver Peak for about $925 million in cash.

Silver Peak will be combined with Hewlett Packard Enterprise’s Aruba business unit and will extend Aruba’s technology leadership in the large and fast-growing SD-WAN space. The combination is anticipated to drive significant revenue opportunities and to be accretive to Intelligent Edge segment revenue growth and gross margin, the company said.

Hewlett Packard Enterprise (HPE) expects that the market for SD-WAN will grow from $2.3 billion in 2020 to $4.9 billion in 2024, which will be +20.5% CAGR.

Executives’ comments

“HPE was an early mover in identifying the opportunity at the edge and that trend is accelerating in a post-COVID-19 world,” said Antonio Neri, president and CEO of HPE.

“With this acquisition we are accelerating our edge-to-cloud strategy to provide a true distributed cloud model and cloud experience for all apps and data wherever they live. Silver Peak’s innovative team and technology bring critical capabilities that will help our customers modernize and transform their networks to securely connect any edge to any cloud.”

“Bringing together Silver Peak’s advanced SD-WAN solutions with Aruba’s industry-leading networking portfolio provides an unprecedented opportunity to deliver a comprehensive business-driven solutions to our customers,” said David Hughes, founder and CEO of Silver Peak.

“The Silver Peak and Aruba teams share a common vision and goal to provide simplicity, scalability, and application-awareness at the edge. With Aruba’s extensive go-to-market, we will further accelerate our ability to drive faster adoption of these transformational technologies. We are excited for the opportunities we will have as a combined team to accelerate innovation in this fast-growing segment of the networking market.”

Hewlett Packard stock forecast

Thirteen analysts forecast the average price in 12 months at $10.05 with a high forecast of $13.00 and a low forecast of $8.00. The average price target represents a 6.46% increase from the last price of $9.44. From those 13, one analyst rated ‘Buy’, ten rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $9 with a high of $14 under a bull scenario and $6 under the worst-case scenario. In May, JP Morgan lowered the target price to $11 from $12; Oppenheimer cuts price target to $13 from $15; UBS lowered the target price to $10 from $13, while Jefferies raised target price to $20 from $17. We expect it is good to sell as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst view on the acquisition

“Hewlett Packard Enterprise is acquiring SD-WAN provider Silver Peak which is levered to growing adoption of cloud and remote work applications. We like the strategic rationale and growth/margin profile however the small revenue contribution unlikely drives the transformational change that investors look for,” said Katy L. Huberty, equity analyst at Morgan Stanley.

“Weak on-premise IT spend pressured by COVID-19 and worse-than-expected profitability during disruption drive another significant cost-cutting plan, after executing on HPE Next. Incremental restructuring and limited visibility on backlog conversion keeps us on the sidelines despite a discount versus other enterprise IT peers,” she added.

The company holds high-quality assets but seems unlikely to move the needle on Hewlett Packard Enterprise growth in the medium-term. Silver Peak’s WAN solutions deliver significant cost savings and application performance. Morgan Stanley expects the deal to make strategic sense given the complementary TAM expansion, revenue synergies and accretive gross margin.

However, Morgan Stanley also recognizes that the deal contributes only low single digits to HPE revenue by FY22, which falls short of investors’ hopes for a transformational deal that can drive conviction in HPE’s ability to sustainably grow along the top line.