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The Sell-Side Reacts To Hewlett Packard Enterprise's Q1 Print

The Sell-Side Reacts To Hewlett Packard Enterprise's Q1 Print
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Hewlett Packard Enterprise Co (NYSE: HPE) reported fiscal first-quarter results after the close Thursday, sending shares higher by more than 10 percent. Here's a recap of what some of the Street's top analysts are saying after the print.

Ratings, Price Target Changes

  • BMO Capital Markets' Tim Long maintains a Market Perform rating on HPE's stock with a price target boosted from $14 to $19.
  • Morgan Stanley's Katy Huberty maintains an Overweight rating on HPE's stock with a price target raised from $19 to $20.
  • Wells Fargo's Aaron Rakers maintains a Market Weight rating on HPE's stock with a price target raised from $15 to $17.

BMO: Remain Sidelined

HPE's "solid" earnings report was due to strong growth seen in every business unit and geographical region, Long said in a research report. Highlights included a growth in average selling price in Servers, while Storage and Nimble were also strong. Gross margin was "a little light" and Aruba sales "disappointed slightly," he said. 

HPE boosted its fiscal 2018 earnings per share outlook from a range of $1.15 to $1.25 to a new range of $1.35 to $1.45, the analyst said. The improved outlook is due to a combination of tax reform, lower interest expenses, ongoing share repurchases and strength from the fiscal first quarter.

The earnings report was "encouraging" after multiple quarters where the company demonstrated execution-related issues, Long said. Investors are encouraged to remain on the sidelines until the company can show "more broad signs of growth," at which point a constructive stance on the stock may be warranted, he said. 

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Morgan Stanley Sees Resurgent Quarter

One of the most notable takeaways from HPE's Q1 report is that the "resurgence" of on-premise data center spending is "real," Huberty said in a note. After several years of IT spend across the entire sector, there seems to be a "pause" in the spend around cloud decisions, she said. This gives HPE a multiquarter or even a multiyear tailwind that should help the stock, according to Morgan Stanley. 

HPE's objective of removing $250 million of net costs in fiscal 2018 appears to be tracking faster than expected, the analyst said. The company's initiative, dubbed "HPE Next," could see further momentum as the sales and geography realignment is finalized with a product portfolio optimization continuing through fiscal 2020, Huberty said. 

The "only real nitpick" for the second quarter is that growth could slow when compared to what was seen in Q1, the analyst said. While management did set a conservative bar, it may be able to beat its own outlook if the spending environment remains strong, she said. 

Wells Fargo: Conservative Guidance

HPE's "positive" Q1 report is encouraging, and investors have reason to believe management's guidance for the full fiscal year is conservative, Rakers said in a research report. HPE could deliver upside to its EPS guidance of $1.35 to $1.45 based on the following factors, the analyst said:

  • The 12 cents per share beat (midpoint) in Q1. 
  • HPE expects a 3-percentage point foreign exchange revenue benefit versus a prior estimate of 2 percentage points.
  • A 4-cent per share benefit from a lower other income and expenses guide.
  • A 12-cent-per-share benefit from a lower tax rate.

Looking forward through fiscal 2021, HPE should be able to grow its EPS at a 5-percent compounded annual growth rate, the analyst said. The company is also expected to return around $7 billion to shareholders by the end of fiscal 2019 and expects a $2-billion-per-year normalized free cash flow into fiscal 2019.

Related Link:

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Photo courtesy of HPE. 

Latest Ratings for HPE

Oct 2018Raymond JamesMaintainsOutperformOutperform
Aug 2018Raymond JamesMaintainsOutperformOutperform
Aug 2018BMO CapitalMaintainsMarket PerformMarket Perform

View More Analyst Ratings for HPE
View the Latest Analyst Ratings

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