Hewlett Packard Enterprise Tops Earnings Forecasts, Ups Full-Year Guidance

Hewlett Packard Enterprise Company (HPE) traded mostly unchanged in Tuesday’s extended-hours session despite the enterprise-computing hardware company surpassing Wall Street expectations and raising its full-year forecast.

The company posted a fiscal Q1 profit of 52 cents per share while analysts had expected earnings of 40 cents a share. Moreover, the bottom line grew 18% from a year earlier. Sales of $6.83 billion also came in ahead of Street forecasts but were down from revenues of $6.95 billion reported in the same quarter last year.

Looking ahead, management now expects FY 2021 earnings to range between $1.77 and $1.80 a share, up from its previous forecasts of $1.60 to $1.78. CEO Antonio Neri told Barron’s that the company saw a recovery in enterprise IT spending throughout the quarter, adding that he anticipates demand gradually resuming this year.

As of March 3, 2021, Hewlett Packard has a market value of $18.86 billion, issues a healthy 3.29% dividend yield, and trades 22.36% higher year to date (YTD). Over the past 12 months, the shares have gained 12.5%. Valuation wise, the stock trades at nearly nine times projected earnings, slightly below its five-year average multiple of 9.65 times.

Wall Street View

In January, JPMorgan analyst Paul Coster upgraded HP Enterprise to ‘Overweight’ and lifted his price target to $16 from $13. Coster told investors the stock was a good “contrarian long trade,” given the company’s move into the SD-WAN space, its ongoing cost-cutting initiatives, and the expected recovery in enterprise IT spending.

Most other analysts have a wait-and-see view on the stock. It receives 13 ‘Hold’ ratings, 5 ‘Buy’ ratings, and 1 ‘Sell’ rating. Twelve-month price targets range from a Street-high $18 to a low of $10. The median target sits at $14 – 3.4% below Tuesday’s closing price of $14.50.

Technical Outlook and Trading Tactics

Since bottoming out around $8 a share in late October, the share price has trended sharply higher. More recently, traders have booked profits ahead of the company’s quarterly earnings. This provides a “buy the dip” opportunity for active traders.

Look for entry points at the $14 level, where the price finds support from a four-month uptrend line. In terms of trade management, consider placing a stop-loss order beneath the 50-day simple moving average (SMA). Think about booking profits on a retest of pre-pandemic high at $17.59.

For a look at today’s earnings schedule, check out our earnings calendar.

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.

Second Quarterly Results Of HP Beat Estimates As Revenues Grows In Double Digits

These figures were better than expected and they were attributed primarily to successful product rollouts and strength in printing and personal computing segments.

“We delivered another quarter of double-digit year over year revenue and profit growth, strong EPS and impressive free cash flow and performed well across segments and regions. Our sharp focus on innovation, combined with operational excellence and driving profitable growth is paying off,” the president and chief executive officer of HP Inc, Dion Weisler, said.

Personal systems unit

In the personal systems, category revenues increased by 14% year-on-year to reach a figure of $8.8 billion and this was due to the strong demand that was experienced with regards to high-end products. Additionally, prices for products in this category were raised by 7%. Consumer revenues increased by 10% while commercial revenues rose by 16%.

Revenues in HP’s printing business increased by 11% year-on-year to reach a figure of $5.2 billion. This was attributed to an increase of 8% in supplies revenues as well as the integration of South Korea-based Samsung’s printing business, S-Print which was acquired recently. By acquiring S-Print HP got a boost in the premium copier machine market that is currently dominated by Xerox Corporation.

Consumer and commercial hardware

The total hardware unit revenues increased by 13% and this was as a result of a growth of 4% in the consumer hardware unit. The commercial hardware unit, on the other hand, saw growth of 88% year-over-year. The impressive growth recorded in the commercial hardware unit was as a result of the integration of S-Print.

In all the regions that HP operates in, there was double-digit growth in revenues with the exception of the Americas where year-over-year growth was 7%. In the Japan and Asia Pacific region, 13% year-over-year growth was recorded while in the EMEA region revenues grew by 21% year-over-year. EMEA is an acronym for Europe, Middle East, and Africa.

Net earnings, on the other hand, increased by 89.3% to reach a figure of $1.06 billion in the quarter. This translated to net earnings per share of 64 cents and this increase was partly as a result of the tax benefit amounting to $975 million.

Global leader

According to International Data Corp, a research firm, HP was the worldwide leader with regards to shipments of a personal computer in this year’s first quarter with a market share of 22.6%. Per analysts at International Data Corp major PC, vendors have been helped by rising demand for high-end notebooks.

At the same time, HP has named Steve Fieler, its current head of corporate finance and treasury as the incoming chief financial officer. He will be taking over from Cathie Lesjak starting July 1, 2018. In an interim capacity, Lesjak will take over as the chief operating officer of the company before she retires early next year. Lesjak is a veteran Hewlett Packard executive having worked at the company for more than three decades.