Today's Hewlett Packard Enterprise Might Be 2012's HP
Bernstein’s Toni Sacconaghi, Jr maintained an Outperform rating for Hewlett Packard Enterprise Co (NYSE: HPE), with a price target of $19. He mentioned that the company seems to be what HP Inc (NYSE: HPQ) was in 2012, with “potentially much running room” for its stock.
In several ways, the set-up for Hewlett Packard Enterprise is similar to that for HPQ before the company split up. HPQ’s shares troughed at $12 and rose to $40 between November 2012 and December 2014, analyst Toni Sacconaghi noted.
He explained that the parallels between the two companies were:
- Both stocks were “extremely inexpensive” at their troughs
- HPQ recorded revenue declines in seven of nine quarters during revaluation, suggesting that revenue growth was not “a pre-cursor for a re-rating”
- Improvement in free cash flow was the main driver of HPQ's re-rating. HPQ was able to improve FCF from $5 billion to $11 billion. Sacconaghi expects Hewlett Packard Enterprise’s FCF can improve from $1 billion to $3.5 billion, mainly on the back of margin expansion at Services
- HPQ laid off 30,000 employees, while Hewlett Packard Enterprise has plans to downsize by a similar number.
“We see HPE as a "self-help story" at a very attractive price. Despite recent run-up, we see further potential upside,” the analyst commented.
Latest Ratings for HPE
|Feb 2017||BMO Capital||Downgrades||Outperform||Market Perform|
|Jan 2017||Guggenheim||Initiates Coverage On||Neutral|
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