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Hewlett-Packard Enterprise's Spinoff Leaves Remaining Company On 'Wrong Side Of The Cloud'

Hewlett-Packard Enterprise's Spinoff Leaves Remaining Company On 'Wrong Side Of The Cloud'
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Barclays’ Mark Moskowitz believes Hewlett Packard Enterprise Co (NYSE: HPE) is not in a strong position to benefit from cloud disruption over the next three to five years.

Moskowitz maintains an Underweight rating on the company, while raising the price target from $16 to $17.

Wrong Side Of The Cloud

“Fundamentals are likely to continue taking a backseat to financial engineering, as HP Enterprise announced another spin yesterday alongside mixed Jul-Q results,” the analyst mentioned.

Related Link: Hewlett Packard Enterprises Continues To Find Ways To Create Value For Shareholders

The company has announced it intends to spin off its software business, and Moskowitz believes the “remain co” would be hardware-heavy and on the “wrong side of the cloud.”

However, the analyst noted, “UK-based Micro Focus is the latest beneficiary of HP Enterprise's efforts to create value for shareholders. With self-help stories in favor, as we highlighted in mid July, HPE's stock should find support in the near- to midterm.”

July Quarter

For the July quarter, HP Enterprise reported an 18 percent year-on-year decline in revenue, with a 6 percent decline in consolidated revenue following the 1.5 percent year-on-year improvement in the April quarter.

The analyst believes the July quarter results raise some red flags for the “remain co,” and pointed out that services remained weak during the quarter, with storage, servers and networking slowing.

“We are concerned that these slowdowns are not a one-quarter event, which is not good given the latter will be the core of ‘remain co,’” Moskowitz said.

At time of writing, Hewlett Packard Enterprise shares were down 2.22 percent on the day, trading at $21.61.

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Latest Ratings for HPE

Oct 2016CLSAInitiates Coverage OnUnderperform
Sep 2016Wells FargoDowngradesOutperformMarket Perform
Sep 2016BarclaysMaintainsUnderweight

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