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Why Hewlett Packard Enterprise (HPE) Fell 7.5% Last Week?
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Shares of Hewlett Packard Enterprise Company (HPE - Free Report) witnessed a sharp decline last week, mostly after it reported second-quarter fiscal 2017 results. To some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. While better-than-expected results make the stock a good pick, lower-than-expected results dampen investors’ spirit. So, the period following earnings releases is often marked by high market activity.
Shares Plunging
Hewlett Packard Enterprise reported its quarterly numbers on May 31 after the market closed, following which its shares have lost approximately 7.5% of its value so far. Notably, while the overall Zacks categorized Computer-Integrated Systems industry has disappointed this year so far, Hewlett Packard Enterprise is amongst the worst performers. The stock lost 24.8% in the year-to-date period, more than double the industry’s loss of 11.3%.
Hewlett Packard Enterprise reported dismal fiscal second-quarter results, wherein the bottom line fell short of the Zacks Consensus Estimate and also plunged year over year. The company’s revenues also declined significantly on a year-over-year basis.
The year-over-year decline was mainly due to reduced server unit sales, decline in software sales, competitive pricing, heightened commodities pricing pressure, unfavorable exchange rates, soft market condition and some execution issues. Adjusted for currency exchange rates and divestures, the company’s revenues from continuing operations were down just 5% year over year. Unfavorable currency exchange rates adversely affected revenues by 80 basis points (bps).
During the reported quarter, the company witnessed uneven global demand across all regions. In the U.S., sales were stable as the impact from reduced software and Tier 1 server sales were offset by improved sales of core servers and strong growth in networking business. Europe’s contribution remained weak, while the Asia-Pacific and Japan (APJ) region registered mixed demand, with encouraging performance in Japan and India which was more than offset by dismal performance in the rest of Asia.
Apart from this, Hewlett Packard Enterprise’s fiscal third-quarter guidance was also disappointing.
The lackluster fiscal second-quarter overall performance, along with a dull outlook, raises concerns over the company’s future prospects among investors.
Downward Estimate Revisions
Over the last seven days, the Zacks Consensus Estimate for third-quarter and fiscal 2017 witnessed downward revisions. For the fiscal third quarter, the Zacks Consensus Estimate is currently pegged at 26 cents, which is lower than earnings of 31 cents projected seven days ago. Similarly, the Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.48 compared with $1.50 projected seven days ago.
Hewlett Packard Enterprise Company Price and Consensus
We remain cautious about the near-term prospects due to the three main challenges which are currently being faced by the company. Its three main challenges – heightened pressure from unfavorable currency exchange movements, increased commodities pricing and some near-term execution issues – which it had highlighted during its fiscal first-quarter conference call are expected to affect the overall performance in the quarters ahead.
Also, 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.
Nonetheless, we are encouraged by the company’s massive restructuring initiatives. On the one hand, it is offloading low margin business such as Software, which in our opinion will improvise the company’s margins over the long run. On the other hand, it is enhancing its capabilities in the hybrid IT model as evident from the company’s recent agreements to acquire SimpliVity and Cloud Cruiser. We believe that the company’s focus on hybrid IT model will drive growth in the long run.
Currently, Hewlett Packard Enterprise carries a Zacks Rank #3 (Hold).
VASCO Data Security has a long-term expected EPS growth rate of 10%.
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Why Hewlett Packard Enterprise (HPE) Fell 7.5% Last Week?
Shares of Hewlett Packard Enterprise Company (HPE - Free Report) witnessed a sharp decline last week, mostly after it reported second-quarter fiscal 2017 results. To some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. While better-than-expected results make the stock a good pick, lower-than-expected results dampen investors’ spirit. So, the period following earnings releases is often marked by high market activity.
Shares Plunging
Hewlett Packard Enterprise reported its quarterly numbers on May 31 after the market closed, following which its shares have lost approximately 7.5% of its value so far. Notably, while the overall Zacks categorized Computer-Integrated Systems industry has disappointed this year so far, Hewlett Packard Enterprise is amongst the worst performers. The stock lost 24.8% in the year-to-date period, more than double the industry’s loss of 11.3%.
Hewlett Packard Enterprise reported dismal fiscal second-quarter results, wherein the bottom line fell short of the Zacks Consensus Estimate and also plunged year over year. The company’s revenues also declined significantly on a year-over-year basis.
The year-over-year decline was mainly due to reduced server unit sales, decline in software sales, competitive pricing, heightened commodities pricing pressure, unfavorable exchange rates, soft market condition and some execution issues. Adjusted for currency exchange rates and divestures, the company’s revenues from continuing operations were down just 5% year over year. Unfavorable currency exchange rates adversely affected revenues by 80 basis points (bps).
During the reported quarter, the company witnessed uneven global demand across all regions. In the U.S., sales were stable as the impact from reduced software and Tier 1 server sales were offset by improved sales of core servers and strong growth in networking business. Europe’s contribution remained weak, while the Asia-Pacific and Japan (APJ) region registered mixed demand, with encouraging performance in Japan and India which was more than offset by dismal performance in the rest of Asia.
Apart from this, Hewlett Packard Enterprise’s fiscal third-quarter guidance was also disappointing.
The lackluster fiscal second-quarter overall performance, along with a dull outlook, raises concerns over the company’s future prospects among investors.
Downward Estimate Revisions
Over the last seven days, the Zacks Consensus Estimate for third-quarter and fiscal 2017 witnessed downward revisions. For the fiscal third quarter, the Zacks Consensus Estimate is currently pegged at 26 cents, which is lower than earnings of 31 cents projected seven days ago. Similarly, the Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.48 compared with $1.50 projected seven days ago.
Hewlett Packard Enterprise Company Price and Consensus
Hewlett Packard Enterprise Company Price and Consensus | Hewlett Packard Enterprise Company Quote
Bottom Line
We remain cautious about the near-term prospects due to the three main challenges which are currently being faced by the company. Its three main challenges – heightened pressure from unfavorable currency exchange movements, increased commodities pricing and some near-term execution issues – which it had highlighted during its fiscal first-quarter conference call are expected to affect the overall performance in the quarters ahead.
Also, 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.
Nonetheless, we are encouraged by the company’s massive restructuring initiatives. On the one hand, it is offloading low margin business such as Software, which in our opinion will improvise the company’s margins over the long run. On the other hand, it is enhancing its capabilities in the hybrid IT model as evident from the company’s recent agreements to acquire SimpliVity and Cloud Cruiser. We believe that the company’s focus on hybrid IT model will drive growth in the long run.
Currently, Hewlett Packard Enterprise carries a Zacks Rank #3 (Hold).
A better-ranked stock in the Computer-Integrated Systems industry is VASCO Data Security International, Inc. , which carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
VASCO Data Security has a long-term expected EPS growth rate of 10%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>