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Hewlett Packard (HPE) to Report Q2 Earnings: What to Expect?

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Hewlett Packard Enterprise Company (HPE - Free Report) is set to report second-quarter fiscal 2018 results on May 22. The company posted a positive earnings surprise of 47.8% in the last reported quarter. Notably, Hewlett Packard has a decent surprise history, beating the Zacks Consensus Estimate thrice, while missing the same in one occasion. It has an average negative earnings surprise of 11.7%.

Let’s see how things are shaping up prior to this announcement.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Hewlett Packard 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 at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

It should be noted that stocks with a Zacks Rank #4 or 5 (Sell rated) are best avoided, especially when the company is seeing negative estimate revisions.

Hewlett Packard currently carries a Zacks Rank of 3 and has an Earnings ESP of 0.00%, which makes surprise prediction difficult. Furthermore, the Zacks Consensus Estimate for second-quarter earnings remained unchanged, over the past 30 days.

The Zacks Consensus Estimate projects earnings per share to increase 6% to 31 cents from the year-ago quarter’s figure of 25 cents. However, analysts polled by Zacks anticipate revenues to be down 26% year over year to $7.33 billion.

Hewlett Packard Enterprise Company Price and EPS Surprise

Factors to Consider

The year-over-year decline in revenues is expected mainly because Hewlett Packard is now focusing on the enterprise market and moving away from the firm’s hyperscaler business, which, we believe, will continue to hurt its revenues in short term.

Furthermore, the acquisition of EMC Corporation (stylized as EMC) by Dell has been posing new challenges for Hewlett Packard Enterprise. With this acquisition, Dell has become one of the major players in the cloud services and data-storage market. EMC offers data storage, information security, virtualization, analytics, cloud computing, and other products and services that enable businesses to store, manage, protect, and analyze data.

Additionally, VMware (VMW - Free Report) was EMC’s subsidiary that focuses on cloud and virtualization software and services for its parent company. Therefore, the acquisition of EMC, along with its privately-controlled structure, is providing Dell an unmatched scale, strength and flexibility to deepen the company’s relationships with customers of all sizes.

This apart, it also seems that Hewlett Packard Enterprise is losing market share to Dell in the server shipment. Notably, according to IDC, during fourth-quarter 2017, Dell managed to drastically narrow down the server shipment market-share difference with Hewlett Packard Enterprise, as the company “continues to capitalize on expanded opportunities from its merger with EMC.”

Nonetheless, the company’s bottom-line results are likely to benefit from the spin-off of its low-margin businesses like Software and Enterprise Services. In addition, massive share buybacks over the past year are expected to have boosted Hewlett Packard’s fiscal second-quarter earnings per share.

Notably, during fiscal 2017, Hewlett Packard returned $3 billion to its shareholders, of which $2.56 billion was through share repurchases and the remaining through dividend payments. Continuing the same, the company, during the last reported quarter, returned $862 million to shareholders, of which $742 million was through share repurchases and the remaining through dividend payments.

Some Stocks With Favorable Combination

Here are couple of stocks, which, as per our model, have the right combination of elements to post an earnings beat this quarter:

NetApp, Inc. (NTAP - Free Report) has an Earnings ESP of +1.00% and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuit Inc. (INTU - Free Report) has an Earnings ESP of 1.24% and carries a Zacks Rank of 3.

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