Why Analysts Are Still Sidelined on Hewlett Packard Enterprise

Hewlett Packard Enterprise Co. (NYSE: HPE) reported its most recent quarterly results after the markets closed on Thursday. Investors cheered this stock to an all-time high following these solid results. However, analysts were slower to acknowledge and reward the win. Some hiked their price targets but are still staying on the sideline for this stock.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts said about HPE after the fact.

HPE posted earnings of $0.34 per share and $7.7 billion in revenue. Consensus estimates had called for $0.22 per share on $7.07 billion. The same period of last year reportedly had per-share earnings of $0.45 and $11.41 billion in revenue.

The company reported its segment results as follows:

  • Hybrid IT revenue was $6.3 billion, up 10% year over year and up 9% when adjusted for currency, with a 9.6% operating margin. Compute revenue was up 11%, up 10% when adjusted for currency, Storage revenue was up 24% and up 23% when adjusted for currency; DC Networking revenue was up 27%, up 25% when adjusted for currency; and Pointnext revenue was up 2%, flat when adjusted for currency.
  • Intelligent Edge revenue was $620 million, up 9% year over year and up 7% when adjusted for currency, with a 2.9% operating margin. HPE Aruba Product revenue was up 9%, up 7% when adjusted for currency, HPE Aruba Services revenue was up 6% and also up 6% when adjusted for currency.
  • Financial Services revenue was $888 million, up 8% year over year and 5% when adjusted for currency effects, net portfolio assets were up 6%, and financing volume was up 7%. The business delivered an operating margin of 8.1%.

Looking ahead to the fiscal second quarter, the company expects to see earnings in the range of $0.29 to $0.33 per share. The consensus estimates call for $0.26 per share, as well as revenue of $7.05 billion.

CFRA (S&P) maintained a Hold rating but raised its price target to $19 from $15. The firm said that it sees favorable comparables and healthy prospects for all-flash storage and networking offerings. CFRA is also encouraged by cash usage plans after tax reform, with plans to aggressively repurchase shares and hike its dividend by 50%.

Merrill Lynch maintained an Underperform rating with a $14 price objective. The firm detailed its investment rationale in its report:

Our Underperform rating is based on 1) headwinds facing the server business from Tier-1 customers moving increasingly to lower-cost alternatives, 2) competitive pricing pressure, 3) reduced growth in Storage (ex 3PAR all flash which continues to show strong growth), 4) continued headwind from commodity costs (including DRAM), and 5) free cash flow still below historical levels on one-time payments related to restructuring, separation costs, tax payments, etc.

A few other analysts also weighed in on HPE after the report:

  • Deutsche Bank has a Buy rating and raised its price target to $22 from $19.
  • Mizuho has a Neutral rating and raised its price target to $17 from $14.
  • Morgan Stanley raised its target price from $19 to $20.
  • Pivotal Research has a Hold rating and raised its target to $20 from $12.
  • RBC raised its price target from $17 to $19.
  • BMO has a Market Perform rating and raised its target to $19 from $14.
  • Raymond James raised its target price to $22 from $17.
  • Susquehanna raised its price target to $17 from $14.

Shares of HPE closed Friday at $18.14, with a consensus analyst price target of $15.82 and a 52-week trading range of $12.70 to $18.19.