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Hewlett Packard (HPE) to Post Q2 Earnings: What's in Store?

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Hewlett Packard Enterprise Company (HPE - Free Report) is scheduled to report second-quarter fiscal 2019 results on May 23.

Notably, the company’s key metrics beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 13.41%.

In the last reported quarter, the company delivered non-GAAP net earnings of 42 cents per share, which surpassed the Zacks Consensus Estimate of 34 cents and also surged 31% on a year-over-year basis.

However, Hewlett Packard Enterprise reported revenues of $7.55 billion, which dipped 2% on a year-over-year basis and also missed the Zacks Consensus Estimate of $7.68 billion.

Guidance and Estimates for Q2

For second-quarter fiscal 2019, Hewlett Packard Enterprise forecasts non-GAAP earnings per share in the range of 34-38 cents. The Zacks Consensus Estimate is currently pegged at 36 cents.

Further, the consensus mark for revenues currently stands at $7.44 billion, indicating a slip of 0.33% from the year-ago reported figure.

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

Factors at Play

Hewlett Packard Enterprise’s results for the fiscal second quarter are likely to gain traction from solid growth in Compute-Value portfolio, aided by high-performance compute and hyper-converged offerings.

Moreover, growth in All-Flash Storage, driven by Nimble and Big Data solutions, is likely to boost its Storage revenues. The company expects the recently announced acquisition of BlueData to act as a tailwind in this regard.

Further, the company’s results are anticipated to benefit from its Intelligent Edge segment, attributable to solid growth in Aruba Services and Aruba Product revenues. Consistent installed base growth is lifting Aruba Services while strong growth across both wired and wireless LAN is enhancing Aruba Product revenues. The launch of two solutions, the Aruba 510 campus access points designed for 802.11ax and the Aruba 8325 switch series, is a positive.

Additionally, cost-saving initiatives, expansion in the operating margin and a solid capital return strategy bode well for the company’s growth.

However, reduced Tier one server sales due to the company’s decision to exit unprofitable Tier-1 server business is currently an overhang on its compute-volume revenues. Although the company predicts the impact from Tier one to become less dilutive to revenue growth toward the end of the ongoing fiscal year, its effect in the fiscal second quarter makes us apprehensive about the stock’s prospects.

Further, the company’s strategic move to exit from low-margin countries in the advisory and professional service business is leaving HPE Pointnext revenues stressed. Also, foreign exchange headwinds are a relentless concern.

What the Model Says

The proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has high chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

HPE currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% in the combination makes surprise prediction difficult for the stock this reporting cycle.

Key Picks

Here are some stocks worth considering as our model shows that these have the right combination of elements to beat on earnings in the upcoming releases:

Intuit Inc. (INTU - Free Report) has an Earnings ESP of +0.59% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Science Applications International Corporation (SAIC - Free Report) has an Earnings ESP of +5.52% and a Zacks Rank of 2.

GTT Communications, Inc. has an Earnings ESP of +16.07% and a Zacks Rank of 3.

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