It has been about a month since the last earnings report for Hewlett Packard Enterprise (
HPE Quick Quote HPE - Free Report) . Shares have lost about 1.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is HP Enterprise due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hewlett Packard Q3 Earnings Beat, Revenues Rise Y/Y
Hewlett Packard Enterprise reported third-quarter fiscal 2023 non-GAAP earnings of 49 cents per share, which came ahead of the Zacks Consensus Estimate by 6.52%. The reported figure was 12.1% higher than the year-ago quarter’s earnings of 48 cents per share.
Revenues of $7 billion increased 0.7% (up 3.5% at constant currency [cc]) from the prior-year quarter and beat the consensus mark by 0.35%. The annualized revenue run rate was up 48% year over year to $1.3 billion.
Hewlett Packard continued to witness the increased demand for its products and services during the quarter. Despite high inflationary pressure, macroeconomic headwinds and geopolitical issues, the company witnessed an increase in earnings and sales.
The top line benefited from exceptional performance in areas like the Intelligent Edge, where revenues have set its fifth consecutive quarterly record and HPE GreenLake, which continues to accelerate strategic pivot, generating higher recurring revenues and gross profit across four product segments, driven by the increased mix of high-margin software and services.
Segment-wise, High-Performance Compute & Artificial Intelligence revenues increased 1% (up 3% at cc) year over year to $836 million. The segment’s operating margin came in at (0.8)% compared with 3.4% reported in the year-ago quarter.
The Compute division’s sales declined 13% (down 10% at cc) year over year to $2.6 billion. The division witnessed 10.9% operating profit margin compared with 13.5% reported in the year-ago quarter.
Revenues in the Intelligent Edge division rose 50% (up 53% at cc) year over year to $1.4 billion during the quarter, primarily driven by strong customer demand. The division witnessed 29.7% operating profit margin expansion from 16.5% reported in the year-ago quarter.
Financial Service revenues increased 7% from the prior-year period and at cc to $873 million with 8.4% operating profit margin compared with 11.8% from the prior-year period. Net portfolio assets of $13.5 billion increased 7.5% year over year.
Revenues from the Storage business were down 5% (down 2% at cc) year over year to $1.1 billion. The division witnessed 10.7% operating profit margin from 14.3% reported in the year-ago quarter.
Corporate Investments & Other revenues were $318 million, up 6% year over year.
The non-GAAP gross profit decreased 0.4% to $2.51 billion. Meanwhile, the non-GAAP margin contracted 400 basis points (bps) to 35.9%.
Hewlett Packard’s non-GAAP operating profit decreased 1.5% to $718 million, while the non-GAAP operating margin contracted 200 bps year over year to 10.3%.
Balance Sheet and Cash Flow
Hewlett Packard ended the fiscal third quarter with $2.91 billion in cash and cash equivalents compared with $2.78 billion at the end of the previous quarter.
In the fiscal third quarter, HPE generated $1.5 billion in cash for operational activities and $955 million in free cash flow.
The company returned $341 million to shareholders through repurchasing $187 million worth of its common stock and $154 million in dividend payments in the reported quarter.
HPE announced that its board approved a quarterly cash dividend of 12 cents per share payable on Oct 13, 2023, to the shareholders recorded as of Sep 14, 2023.
Hewlett Packard initiated guidance for the fiscal fourth quarter and raised the outlook for fiscal 2023. The company forecasts to generate revenues between $7.2 billion and $7.5 billion in the fiscal fourth quarter. The company estimates GAAP and non-GAAP diluted net earnings per share (EPS) in the range of 36-40 cents and 48-52 cents, respectively.
For fiscal 2023, HPE reiterates GAAP diluted net EPS in the range of $1.42-$1.46 and raises non-GAAP diluted net EPS guidance in the range of $2.11-$2.15 from the previous guidance of $2.06-$2.14.
Moreover, the company now estimates revenues to grow in the range of 4-6% adjusted for currency. HPE continues to anticipate free cash flow in the band of $1.9-$2.1 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 6.04% due to these changes.
At this time, HP Enterprise has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, HP Enterprise has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.