Barclays Advises Profit Taking In Hewlett Packard Enterprise, Sees Lack Of Upside

"While investors might be interested in incremental benefits for HPE's pro forma model from the pending services and software spins, we think the pro forma remain co valuation looks heavy and at risk as its revenue base stands firmly in the crosshairs of the cloud and with limited remedies in sight beyond the near term," analyst Mark Moskowitz wrote in a note.

The analyst said the remain co trades at a P/E ratio of 12.4x based on his C2017 pro forma numbers, versus IT Hardware comps of 10.9x.

Despite improving server, storage and networking end markets, Moskowitz said the remain co could be hit by cloud migration once the benefit from financial engineering and share repurchases fade.

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According to Barclays' recent Cloud survey, respondents expect 61 percent and 55 percent of storage and server workloads to move to public cloud by 2020, up from 25 percent and 19 percent in 2016.

The analyst, who has an Underweight rating and $17 price target on the stock, continue to be concerned over remain co's over exposure to the cloud risk.

Moskowitz noted that storage (10 percent of revenue) and servers (48 percent) are in the cross-hairs of the cloud. In addition, a big chunk of technology services (25 percent) "could be at risk as the storage and server segments encounter greater deflationary forces."

"That's not good for a big chunk of remain co's revenue," Moskowitz added.

Shares of Hewlett Packard Enterprise closed Monday's trading at $22.50 and were trading flat on Tuesday's first minutes after the opening bell.

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