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Hewlett Packard (HPE) Down 8.7% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Hewlett Packard Enterprise Company (HPE - Free Report) . Shares have lost about 8.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is HPE due for a breakout? 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.

Recent Earnings

 

Hewlett Packard Surpasses Earnings Estimates in Q2

Hewlett Packard reported non-GAAP net earnings from continuing operations of 34 cents per share, which beat the Zacks Consensus Estimate of 31 cents and exceeded the guided range of 29-33 cents. On a year-over-year basis, the figure almost doubled.

On a GAAP basis, the company reported earnings of 49 cents from continuing operations against a loss of 37 cents reported in the year-ago quarter. Moreover, it compared favorably with the guided range of 10-14 cents. The company attributed the better-than expected results to separation related tax indemnification adjustments.

Revenues

Hewlett Packard Enterprise reported revenues from continuing operations of $7.468 billion, up 10% on a year-over-year basis. Further, quarterly revenues outpaced the Zacks Consensus Estimate of $7.326 billion.

Adjusted for currency-exchange rates, the company’s revenues from continuing operations increased 6% year over year.

The company witnessed particular tailwinds in Intelligent Edge, High-Performance Compute, Storage, Hyper Converged and Composable Infrastructure.

During the reported quarter, Hewlett Packard Enterprise’s revenues in the Americas grew 3% in constant currency, primarily due to strength in storage and the Intelligent Edge. Revenues in Europe were up 9% in constant currency, with UK, France and Italy registering double-digit growth. EMEA performed pretty well with double-digit growth in compute, storage and Aruba Products and Services. Asia Pacific revenues were up 9% at constant currency, with impressive growth in Singapore, Australia and China.

Segment wise, Hybrid IT revenues increased 7% year over year and 4% at constant currency to $6.023 billion. Revenues from the Intelligent Edge and Financial Services segments climbed 17.2% and 5%, respectively.

Operating Results

Hewlett Packard Enterprise’s gross margin expanded 90 basis points (bps) on a year-over-year basis to 30.4%. In addition, the company’s non-GAAP operating margin increased 270 bps to 8.6%.

The improvement in margins was primarily attributed to cost savings from HPE Next. Management was also positive about pricing and DRAM was less of a negative aspect compared to the previous quarters.

Balance Sheet and Cash Flow

Hewlett Packard Enterprise ended fiscal second quarter with $6.9 billion in cash and cash equivalents, compared with $7.7 billion recorded at the end of the previous quarter. Long-term debt at quarter end was $9.970 billion compared with $10.040 billion recorded in the first quarter.

During the quarter, Hewlett Packard Enterprise generated $200 million of cash flow from operational activities. However, free cash flow was negative $269 million. Additionally, during the reported quarter, the company returned $1 billion to shareholders, of which $907 million was through share repurchases and the remaining through dividend payments.

Guidance

The company issued an encouraging bottom-line guidance for the third quarter and raised its outlook for fiscal 2018.

For third-quarter fiscal 2018, Hewlett Packard Enterprise projects non-GAAP earnings per share in the range of 35-39 cents (mid-point: 37 cents). On a GAAP basis, the company guides the bottom line to be in the range of 19-23 cents.

Hewlett Packard Enterprise now expects non-GAAP earnings per share for fiscal 2018 in the range of $1.40-$1.50 (mid-point $1.45), up from the previous range of $1.35-$1.45 (mid-point $1.40). On a GAAP basis, the company now projects the bottom line to be in the band of $1.70-$1.80 per share, up from the prior range of $1.35-$1.45.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter compared to one lower.

VGM Scores

At this time, HPE has a subpar Growth Score of D. Its Momentum is doing a lot better with a B. The stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

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




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