HP Enterprise Misunderstood By The Street, Loop Capital Markets Says In Upgrade

Hewlett Packard Enterprise Co HPE is scheduled to report fourth-quarter results Thursday, but Loop Capital Markets isn't waiting for the print to turn bullish on the stock.

The Analyst

Loop Capital Markets' Ananda Baruah upgraded Hewlett Packard Enterprise's stock rating from Hold to Buy with a price target boosted from $14.50 to $21.

The Thesis

The case for owning HPE stock is based on multiple catalysts over the next eight to 12 quarters, Baruah said in the upgrade note. Many investors reached the wrong conclusions after the company's analyst day presentation, and the stock's move to the downside may be unjustified, the analyst said. 

HPE's longer-term guidance is meant to begin in fiscal 2021 rather than fiscal 2019 — and this was not "well understood" by investors, Baruah said. HPE's fiscal 2019 and 2020 guidance was meant to include greater NEXT cost savings, while the remaining $3 billion of the company's share repurchase authorization is likely to have a greater impact to earnings per share versus current expectations, he said. 

Finally, HPE's business boasts no declining revenue segments, which "may come as a surprise" to some investors, Baruah said. HPE's Tier 1 Cloud business is no longer declining; the Unix server business has flattened; any ongoing 3PAR all-flash sales issues are being fixed; and Windows servers are now seeing sustainable revenue growth rates, according to Loop Capital Markets. 

Price Action

Shares of Hewlett Packard Enterprise were trading nearly flat ahead of Tuesday's market open.

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Photo courtesy of Hewlett Packard Enterprise.