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Hewlett Packard Enterprise Faces Headwinds: Should You Dump?

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It is prudent to offload certain stocks that do not have enough potential and are weighed down by tough market conditions. Identifying such stocks on a regular basis and getting rid of them is one of the keys to successful investing. Hewlett Packard Enterprise Company (HPE - Free Report) seems to be one such stock, which investors need to dump for now if they are looking to avoid long-term losses. The stock faces several headwinds at the moment and discarding it at the right time is vital to shielding one’s portfolio from massive losses.

Why Should You Avoid the Stock?

Hewlett Packard Enterprise carries a Zacks Rank #4 (Sell). Going by the Zacks model, companies holding a Zacks Rank #4 are likely to underperform the broader market.

Also, analysts have become increasingly bearish on the stock over the past couple of months with estimates moving south. With all the nine estimates moving down and no upward revision in the past 30 days, the Zacks Consensus Estimate for fiscal 2017 earnings declined from $2.05 to $1.94 per share.

Further, Hewlett Packard Enterprise’s stock price history reveals that the company has disappointed for a long time. In fact, in the past three months, shares have declined 4.25%, underperforming the Zacks Computer-Integrated Systems industry, which has showcased an increase of 9.27%.

Adding to the woes, the stock carries a Growth Style Score of “F.” We note a weak Style Score robs the stock of much of its upside potential over the next 30 days. So if a stock you’re in slips to Style Score of D or F, it’s better to sell that stock and switch to one with a score of A or B.

Moreover, the company recently reported its first-quarter fiscal 2017 results. Although the company reported better-than-expected bottom-line results for first-quarter fiscal 2017, we are disappointed by its dismal top-line performance. Not only did it fall short of our estimates but also declined significantly on a year-over-year basis. Notably, this was the third consecutive quarter when the company’s revenues have fallen short of our estimates.

The three major challenges cited by the company are likely to affect its overall performance in the near term as well, owing to which the company lowered its fiscal 2017 earnings outlook.

The dismal first quarter top-line performance along with lowered fiscal 2017 outlook raises concerns over its future prospects among investors.

The company now expects non-GAAP earnings per share in a range of $1.88 to $1.98 (mid-point $1.93), down from $2.00–$2.10 (mid-point: $2.05) projected earlier. The Zacks Consensus Estimate is pegged higher at $1.94 than its mid-point.

The company also provided disappointing earnings guidance for second-quarter fiscal 2017. The company expects non-GAAP earnings per share in a range of 41–45 cents (mid-point: 43 cents), which is lower than the Zacks Consensus Estimate of 44 cents at its mid-point.

Going forward, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines (IBM - Free Report) and Oracle (ORCL - Free Report) adds to its woes.

Our Take

We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from the shares until the Zacks Rank, Growth score and estimates improve.

Stock To Consider

A better-ranked stock in the broader technology sector is Seagate Technology Plc. (STX - Free Report) ., which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Seagate has a long-tern expected EPS growth rate of 8.17%.

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