Investors Could Be Underappreciating The Free Cash Flow At Hewlett Packard Enterprise

Hewlett Packard Enterprise Co HPE reported its quarterly results, with the revenue missing the consensus expectations.

Citi’s Jim Suva maintains a Buy rating on the company, while raising the price target from $25 to $27.

Guidance

Hewlett Packard reported its revenue at $12.48 billion, below the consensus forecast of $12.82 billion, with EPS of $0.61, compared to the consensus expectation of $0.60, driven by improved margins.

The company guided to FQ1 non-GAAP EPS of $0.42–$0.46, with the high end in line with the consensus.

Management also reiterated its FY 2017 EPS and free cash flow guidance.

Suva mentioned that technology services grew 2 percent in constant currency terms for the second consecutive quarter.

“While HPE did not quantify the exact amount, management did acknowledge the benefit from a potential tax policy reform as a positive,” the analyst stated.

Reasons For Optimism

In addition, the divestiture of Hewlett Packard’s ES and SW segments is progressing on track, and the company expressed confidence in its stranded costs targets.

On the other hand, revenues in the core server market were soft, with legacy storage declines and a slowdown in the EMEA, following Brexit.

However, management expressed optimism regarding new product introductions and key focus products driving growth.

“While there are many moving parts to the business with divestitures, accelerated restructuring and separation payments, we believe investors are underappreciating the FCF generation and net cash improvement for HPE,” Suva added.

At last check before Wednesday's opening bell, Hewlett Packard Enterprise was down 1.57 percent at $22.51.

Image Credit: By Raysonho @ Open Grid Scheduler / Grid Engine (Own work) [CC BY-SA 3.0], via Wikimedia Commons
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Posted In: Analyst ColorEarningsLong IdeasNewsGuidancePrice TargetAnalyst RatingsTrading IdeasCitiJim Suva
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