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Why Is HP Enterprise (HPE) Up 8.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Hewlett Packard Enterprise (HPE - Free Report) . Shares have added about 8.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HP Enterprise due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Hewlett Packard Q1 Earnings Beat Estimates

Hewlett Packard Enterprise Company delivered first-quarter fiscal 2021 non-GAAP earnings of 52 cents per share, which surpassed the Zacks Consensus Estimate by 30%. The reported figure also came in higher than the year-ago number of 44 cents.

Revenues of $6.83 billion were down 1.7% from the prior-year quarter. However, the reported figure beat the Zacks Consensus Estimate of $6.78 billion.

The top line was affected by lower revenues from HPC & MCS businesses. However, strong growth in Intelligent Edge was a positive.

Also, growing traction of its cloud-native Aruba Edge Services platform has benefited the company’s quarterly results.

Further, the annualized revenue run-rate (ARR) was up 27% year over year to $649 million.

Quarterly Details

Segment-wise, the company registered sequential sales growth across most of its business segments.

Total as-a-service orders rose 26% year over year, fueled by solid performance in Europe and Japan. Notably, the Aruba Central SaaS platform also witnessed triple-digit growth year over year.

Revenues from the Storage business were down 5% sequentially to $1.2 billion. HPC & MCS revenues declined 9% quarter on quarter to $762 million, primarily due to unfavorable timing of deals. Nonetheless, Nimble grew 31% from the prior-year quarter when adjusted for currency. Moreover, All Flash Array Storage increased 5% year over year, driven by solid adoption of Primera All Flash.

Revenues in the Intelligent Edge division rose 11% year over year to $806 million during the quarter. Financial Service revenues were up 0.1% year over year to $860 million.

However, the Compute division’s sales declined 1% year on year to $3 billion.

Further, this was the first full quarter following Hewlett Packard’s acquisition of Silver Peak. Notably, Silver Peak contributed about 500 basis points toward the growth of Intelligent Edge revenues.

Operating Results

Non-GAAP gross margin of 33.7% contracted 30 basis points (bps) on a year-over-year basis.

HPE’s non-GAAP operating profit climbed 130 bps year over year to 11.3%. Non-GAAP operating profit margin of 11.5% improved 80 bps from the year-ago quarter’s level.

Balance Sheet and Cash Flow

The company ended the fiscal first quarter with $4.17 billion in cash and cash equivalents compared with $4.23 billion recorded at the end of the previous quarter.

During the reported period, Hewlett Packard generated operating and free cash flows of $1 billion and $563 million, respectively.

Moreover, management provided an update on its cost-optimization plan, which will be implemented through fiscal 2022, including changes to the company’s workforce, real estate model and business process improvements. Hewlett Packard continues to expect at least $800 million in annualized savings by the end of fiscal 2022.

The company declared that a regular cash dividend of $0.12 per share will be paid out on Apr 7, 2021.

Guidance

For second-quarter fiscal 2021, Hewlett Packard expects non-GAAP earnings between 38 cents and 44 cents per share.

Additionally, the company raised its fiscal 2021 non-GAAP earnings outlook to $1.70-$1.88 per share from $1.60-$1.78 forecasted earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 50% due to these changes.

VGM Scores

At this time, HP Enterprise has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HP Enterprise has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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