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Hewlett Packard (HPE) Q3 Earnings: Stock Likely to Beat
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Hewlett Packard Enterprise Company (HPE - Free Report) is set to report third-quarter fiscal 2016 results – the third quarterly release post its split from Hewlett-Packard Company – on Sep 7. Last quarter, the company’s earnings were in line with the Zacks Consensus Estimate. Let’s see how things are shaping up for this announcement.
Prior to the split, Hewlett-Packard Company was a leading global provider of computing products, technologies, software and services to individual consumers, SMBs and large enterprises, including those operating in the public and educational sectors. Products like PCs and access devices, imaging and printing-related products and services, enterprise IT infrastructure, and multi-vendor customer services including support, maintenance, consulting, integration and outsourcing comprised its offerings.
Post the split, Hewlett-Packard Company’s PC and printer business operates under the name HP Inc. (HPQ - Free Report) , while Hewlett Packard Enterprise offers commercial tech products.
Zacks Model Indicates Likely Earnings Beat
Our proven model shows that Hewlett Packard Enterprise is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Hewlett Packard Enterprise’s Most Accurate estimate stands at 45 cents while the Zacks Consensus Estimate is pegged at 44 cents, resulting in an Earnings ESP of +2.27%. Thus, the combination of the company’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat this quarter.
We believe that the parent company’s (Hewlett-Packard Company) initiative to split the business has started benefiting Hewlett-Packard Enterprise. In our opinion, a split allows a customized approach to two different businesses, which might not have been possible if they operate as a single entity.
Notably, during the second quarter, the company witnessed year-over-year growth in revenues for the first in the last six quarters (considering the segment prior to split). The upside was mainly driven by a strong performance at the Enterprise Group segment.
On a constant-currency basis, revenues increased 5% year over year. Moreover, Hewlett Packard Enterprise has reiterated its earnings guidance for fiscal 2016.
The company has done reasonably well in enterprise class server, storage market, networking and related services, and it intends to maintain its focus on these fast-growing and higher-margin businesses.
Therefore, post the split, Hewlett Packard Enterprise’s Chief Operating Officer (CEO), Meg Whitman, has been looking on reducing the company’s large portfolio of non-core businesses that are now struggling to maintain their growth trajectory.
Keeping with this, the company has sold its stake in Mphasis Limited, an IT services provider in Bangalore, India. Furthermore, in late May, Hewlett Packard Enterprise announced a major restructuring initiative that includes the spin-off of its Enterprise Services segment and a merger of the same with Computer Sciences Corporation in an all stock-exchange agreement. The transaction is expected to allow Hewlett-Packard Enterprise to focus better on faster growing businesses and unlock value for shareholders.
Moreover, according to a Reuters report published yesterday, the company is in talks with buyout firm, Thoma Rova LLC, to sell its software division in a transaction that would fetch the company somewhere between $8 billion and $10 billion.
The primary motive behind such a massive restructuring drive is to reassure investors of the company’s sustained focus on improving profitability and returning value to shareholders in the form of dividend and share repurchases.
We believe that Hewlett-Packard Enterprise’s ongoing business overhaul will yield long-term benefits by supporting innovation and leading to cost savings.
We also believe that successful deployment of the company’s products will boost its top line, going forward.
However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines and Oracle add to its woes.
Other Stocks Poised to Beat Earnings Estimates
Here are a couple of companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:
eGain Corporation (EGAN - Free Report) has an Earnings ESP of +50.00% and a Zacks Rank #2.
Science Applications International Corporation (SAIC - Free Report) has an Earnings ESP of +1.27% and a Zacks Rank #3.
Want more information on HPE earnings? Make sure you check out our live preview at 1pm central time on Tuesday, which discusses the best options trades ahead of the report.
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Hewlett Packard (HPE) Q3 Earnings: Stock Likely to Beat
Hewlett Packard Enterprise Company (HPE - Free Report) is set to report third-quarter fiscal 2016 results – the third quarterly release post its split from Hewlett-Packard Company – on Sep 7. Last quarter, the company’s earnings were in line with the Zacks Consensus Estimate. Let’s see how things are shaping up for this announcement.
Prior to the split, Hewlett-Packard Company was a leading global provider of computing products, technologies, software and services to individual consumers, SMBs and large enterprises, including those operating in the public and educational sectors. Products like PCs and access devices, imaging and printing-related products and services, enterprise IT infrastructure, and multi-vendor customer services including support, maintenance, consulting, integration and outsourcing comprised its offerings.
Post the split, Hewlett-Packard Company’s PC and printer business operates under the name HP Inc. (HPQ - Free Report) , while Hewlett Packard Enterprise offers commercial tech products.
Zacks Model Indicates Likely Earnings Beat
Our proven model shows that Hewlett Packard Enterprise is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Hewlett Packard Enterprise’s Most Accurate estimate stands at 45 cents while the Zacks Consensus Estimate is pegged at 44 cents, resulting in an Earnings ESP of +2.27%. Thus, the combination of the company’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat this quarter.
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Factors to Consider
We believe that the parent company’s (Hewlett-Packard Company) initiative to split the business has started benefiting Hewlett-Packard Enterprise. In our opinion, a split allows a customized approach to two different businesses, which might not have been possible if they operate as a single entity.
Notably, during the second quarter, the company witnessed year-over-year growth in revenues for the first in the last six quarters (considering the segment prior to split). The upside was mainly driven by a strong performance at the Enterprise Group segment.
On a constant-currency basis, revenues increased 5% year over year. Moreover, Hewlett Packard Enterprise has reiterated its earnings guidance for fiscal 2016.
The company has done reasonably well in enterprise class server, storage market, networking and related services, and it intends to maintain its focus on these fast-growing and higher-margin businesses.
Therefore, post the split, Hewlett Packard Enterprise’s Chief Operating Officer (CEO), Meg Whitman, has been looking on reducing the company’s large portfolio of non-core businesses that are now struggling to maintain their growth trajectory.
Keeping with this, the company has sold its stake in Mphasis Limited, an IT services provider in Bangalore, India. Furthermore, in late May, Hewlett Packard Enterprise announced a major restructuring initiative that includes the spin-off of its Enterprise Services segment and a merger of the same with Computer Sciences Corporation in an all stock-exchange agreement. The transaction is expected to allow Hewlett-Packard Enterprise to focus better on faster growing businesses and unlock value for shareholders.
Moreover, according to a Reuters report published yesterday, the company is in talks with buyout firm, Thoma Rova LLC, to sell its software division in a transaction that would fetch the company somewhere between $8 billion and $10 billion.
The primary motive behind such a massive restructuring drive is to reassure investors of the company’s sustained focus on improving profitability and returning value to shareholders in the form of dividend and share repurchases.
We believe that Hewlett-Packard Enterprise’s ongoing business overhaul will yield long-term benefits by supporting innovation and leading to cost savings.
We also believe that successful deployment of the company’s products will boost its top line, going forward.
However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines and Oracle add to its woes.
Other Stocks Poised to Beat Earnings Estimates
Here are a couple of companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:
eGain Corporation (EGAN - Free Report) has an Earnings ESP of +50.00% and a Zacks Rank #2.
Science Applications International Corporation (SAIC - Free Report) has an Earnings ESP of +1.27% and a Zacks Rank #3.
Want more information on HPE earnings? Make sure you check out our live preview at 1pm central time on Tuesday, which discusses the best options trades ahead of the report.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>