Pullback In Hewlett Packard Enterprise Creates Opportunity

Bernstein’s A.M. (Toni) Sacconaghi Jr. believes that any weakness in Hewlett Packard Enterprise Co (NYSE: HPE) shares would present an attractive opportunity to add positions, given that the stock “remains truly inexpensive, particularly on a post-ES and SW spin basis, and offers good downside protection.”

Sacconaghi maintains an Outperform rating on the company, with a price target of $24.50.

Fourth-Quarter Results

Hewlett Packard reported its FYQ4 results on November 22, with the revenue missing expectations but with an in-line EPS, driven by better than anticipated enterprise services margins and overall robust opex control.

As expected, the company reaffirmed its EPS and free cash flow guidance for FY 2017, while guiding to lower FYQ1 EPS of $0.42–$0.46.

Revenues of the enterprise group were disappointing once again, declining 3 percent, while operating profit dollars for FY 2016 decline for the fifth consecutive year, falling 9 percent on an organic basis.

Profitability

“While go forward dynamics suggest that profitability has a good chance of stabilizing, revenue growth for the next 2 quarters will likely continue to be pressured,” Sacconaghi mentioned.

On the other hand, Enterprise Services continued to deliver profitability upside, and the analyst believes the business could have more “running room”.

In addition, Hewlett Packard’s free cash flow was better than expected at $1.5 billion, ahead of the guidance. However, Sacconaghi believes that the Q1 level could be disappointing, partly driven by pension payments to CSC.

At last check, Hewlett Packard Enterprise was up 1.57 percent at $23.23.

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