Hewlett Packard Enterprise (HPE - Free Report) stock has outperformed the broader tech space since the market’s March 23 lows, up 48% vs. 40%. However, the company fell short of our second quarter earnings and revenue estimates on May 21 and its near-term outlook appears rough.
The Short Story
Hewlett-Packard split into HPE and HP Inc. (HPQ - Free Report) back in 2015. HPE sells enterprise-level servers, storage, networking gear, and more. But the firm has lost ground to companies like Cisco (CSCO - Free Report) and fallen behind in cloud computing. Investors should also note that Hewlett Packard Enterprise is attempting to shift to “as-a-service” offerings, which the likes of Salesforce (CRM - Free Report) and others helped popularize.
HPE’s revenue has continued to decline in recent years and its Q2 sales slipped 16%. Meanwhile, its adjusted quarterly earnings fell nearly 50% from the year-ago period to $0.22 a share. This missed our Zacks consensus by 30%.
The company also did not provide any updated fiscal 2020 guidance after it withdrew its outlook in early April. “The global economic lockdowns since February significantly impacted our fiscal Q2 financial performance,” CEO Antonio Neri said in prepared remarks.
As we mentioned at the top, HPE stock has climb recently. But investors can see in the nearby chart that its shares have lagged the tech sector over the last three years.
The stock is still down 27% in 2020 and it’s trading at under $12 a share. This means that the stock is ‘cheap’ and it has plenty of room to climb before it hits its 52-week highs of around $17 a share.
That said, our Zacks estimates call for HPE’s second quarter sales to sink another 15%, with its full-year 2020 revenue projected to dip nearly 13%. Meanwhile, its adjusted quarterly earnings are expected to tumble 47% to help push its FY20 EPS figure down by over 29%.
HPE’s earnings revisions have trended heavily in the wrong direction recently, especially for fiscal 2020 and FY21. This negativity helps HPE hold a Zacks Rank #5 (Strong Sell) right now, alongside its “F” grade for Momentum in our Style Scores system.
Some investors might want to take a chance on HPE as a ‘cheap’ tech stock that sits well off its highs, despite a recent climb. However, longer-term investors likely want to look elsewhere until HPE proves its business transitions are starting to pay off.
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