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Hewlett Packard Enterprise Continues to Grow: Here's Why

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Hewlett Packard Enterprise (HPE - Free Report) is well set on the growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. Also, its shares have posted an incredible one-year return of 303.1% and a year-to-date return of 39.2%.

The company posted an average positive earnings surprise of 4.7%. The company has a market cap of $35.38 billion with long-term earnings growth expectation of 5.5%.

Over the last 60 days, nine out of 11 estimates for Hewlett Packard Enterprise were revised upward for fiscal 2016. The Zacks Consensus Estimate for fiscal 2016 increased 2.1% to $1.92.

What’s Behind the Continued Momentum?

The company released its third quarter of fiscal 2016 earnings on Sep 7, 2016, following its split from Hewlett-Packard Company. The company reported non-GAAP earnings of 49 cents per share compared with 47 cents per share reported a year ago. Moreover, non-GAAP earnings surpassed the Zacks Consensus Estimate.

The company raised the lower end of its earnings guidance for the fiscal year. The company now expects non-GAAP earnings per share to be $1.90–$1.95 (mid-point: $1.925) compared with the earlier guidance of $1.85–$1.95 (mid-point: $1.90). The Zacks Consensus Estimate is pegged at $1.92.

The company now anticipates returning $3 billion in fiscal 2016, which is approximately three times of its original commitment made at the start of the fiscal year.

For fiscal fourth quarter, the company expects non-GAAP earnings of 58–63 cents per share. The Zacks Consensus Estimate is currently pegged at 61 cents.

Recently, the company announced the acquisition of Silicon Graphics for a purchase consideration of $275 million., Antonio Neri, executive vice president and general manager of Hewlett Packard Enterprise said “At HPE, we are focused on empowering data-driven organizations”. He added “SGI's innovative technologies and services, including its best-in-class big data analytics and high performance computing solutions, complement HPE's proven data center solutions designed to create business insight and accelerate time to value for customers.”

The acquisition is expected to strengthen the leading position and financial performance of the combined businesses.

Also, the company declared in a separate press release that it will spin off the software business and merge the same with British software firm, Micro Focus International Plc, in a cash-stock deal worth $8.8 billion.

The transaction, which is subject to some regulatory approvals, is anticipated to be tax free for the company. Per the agreement, the company will receive $2.5 billion in cash and a 50.1% stake in the merged entity, which is currently estimated to be worth $6.3 billion.

This May, it announced the spin-off its struggling IT services segment – Enterprise Services – and entered into an agreement to merge the same with Computer Sciences Corporation .

Most recently, the company completed the sell-off of 84% of its 60.5% equity stake in Mphasis Limited, an IT services provider in Bangalore, India to The Blackstone Group. The transaction has fetched the company around $700 million.

Hewlett Packard Enterprise believes that such massive restructuring moves will complement its focus on core businesses and enable it to compete with players like Oracle (ORCL - Free Report) , Cisco and NetApp as well as the new entrant, Dell.

Furthermore, the company has done considerably well in the enterprise class server and storage markets. The company concentrates its resources on the high-margin software and security markets as well. We believe that the company’s traction in the cloud, security and Big Data segments will enhance its growth trajectory, going forward.

Also, its strategic divestments and initiatives to return value to shareholders in the form of dividend and share repurchases bode well.

Moreover, the stock looks attractive from a valuation perspective. This is because it currently trades at a forward P/E of 11.09x compared with the industry group average of 31.70x, which signifies a huge upward potential.
 

HP INC Price

 

HP INC Price | HP INC Quote

Currently, Hewlett Packard Enterprise carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).

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