HP Enterprise Is 'Misunderstood,' Deutsche Bank Says

• Hewlett-Packard Company has been split into two publicly traded companies, namely Hewlett Packard Enterprise Co HPE and HP Inc.
• Deutsche Bank’s Sherri Scribner initiated coverage of HP Enterprise with a Buy rating and a price target of $23.
• Strong of HP Enterprise’s hardware franchise and its growth opportunities seem to be underappreciated, Scribner mentioned.

Analyst Sherri Scribner said, “We believe the value of HPE’s strong hardware franchise and opportunities for growth are misunderstood by investors.” She believes that the company is poised for growth in the private and public cloud markets, given its industry-leading hardware portfolio.

Although Enterprise Services continues to be a "show me" story, margin expansion is likely to result in an EPS upside of $0.20 over the next 3 years, Scribner stated. She also expects a robust recurring revenue portfolio in services to help stabilize long-term growth.

HP Enterprise is positioned as the leader in the volume server market, a segment that is expected to grow by mid-single-digits over the next few years. Scribner expects HP Enterprise to benefit from this growth, which is being driven by private and public cloud deployments.

“HPE is well positioned in private cloud, and will also benefit from growth in sales of servers to the public cloud – an opportunity that we believe is poorly understood by investors,” the analyst wrote.

Moreover, Technology Solutions, which supports and grows with hardware sales, contributes about 40 percent of the company’s overall operating profit pre-eliminations and “provides a steady recurring revenue and cash flow stream for the company.”

HP Enterprise’s shares are trading at a significant discount to its peers, and its valuation appears “compelling,” the Deutsche Bank stated.