Technology

How Analysts View Hewlett Packard Enterprise After Earnings

Chris Lange

Published: March 6, 2016 10:05 am

Last Updated: January 13, 2020 12:20 pm

Hewlett Packard Enterprise Co. (NYSE: HPE) reported incredible fiscal first-quarter financial results after the markets closed on Thursday. As a result of this stellar report, a few key analysts jumped on the tech giant and gave their two cents. We have included some highlights from the report, in addition to these analyst calls.

The company said it had $0.41 in earnings per share (EPS) on $12.7 billion in revenue, which compares to consensus estimates of $0.40 in EPS on revenue of $12.68 billion. The same period of last year had EPS of $0.44 and $13.1 billion in revenue.

In terms of the outlook, the company expects EPS to be in the range of $0.39 to $0.43 for the fiscal second quarter and in the range of $1.85 to $1.95 for fiscal 2016. The consensus estimates call for EPS of $0.42 and $1.87 in the fiscal second quarter and full year, respectively.

During this quarter, the company returned roughly $1.3 billion to shareholders in the form of share repurchases and dividends. However, the company is taking a more ambitious stance going forward as it plans to return all of its free cash flow to shareholders in the coming year. Management specifically said, “HPE is increasing our commitment to return at least 100% of our free cash flow outlook to shareholders in fiscal 2016.”

The Good. 1) strong fiscal first quarter results with constant currency (CC) growth in all businesses (excl. divestitures), for the first time since 2010, 2), maintained fiscal 2016 EPS guide, 3) repurchased $1.2 billion in shares and increased target to return 100% of its free cash flow vs. prior 50%, 4) Enterprise Services operating margin of 5.1% improved 210 basis points year-over-year and were 10 basis points above our estimate, 5) server sales were strong at 5% year-over-year CC with strength in overall Tier-1 sales as well as core sales in Asia-Pacific and European region offset by pressures in Americas, 6) storage sales accelerated year-over-year with 3% CC growth (vs flat last quarter) driven by converged systems (up 17% and accounted for 56% of the mix, which helped margins) but were below our estimate, 7) networking sales exceeded our estimates (record sales in China) with double-digit year-over-year growth at CC in Aruba as well as the core segment excluding Aruba, 8) ES book-to-bill was roughly 1.

Merrill Lynch reiterated a Neutral rating with a $15 price objective. The brokerage firm noted that fiscal 2016 is back-end loaded for both earnings and cash flow. Merrill Lynch models full-year cash flow slightly below the guidance range, given the significant ramp required in the back half. Earnings are also back-end loaded as margins improve in Enterprise Services and Software. The firm remains concerned on uncertain end markets and the earnings and free cash flow targets that leave little room for mis-execution.

Credit Suisse sees continued evidence of a Hewlett Packard Enterprise turnaround, constant currency revenue growth, ES margin up year over year, switching share gains, growth in all operational segments, and decent visibility in a weak macro environment. Additionally, the firm believes that the capital return plan shows discipline and will be well taken. As a result, Credit Suisse raised its EPS estimates to $1.93 and $2.04 from $1.90 and $2.03 for fiscal 2016 and 2017, respectively. The firm also reiterated its Outperform rating and price target of $21. Credit Suisse sees upside of over 40% from the current levels.

Shares of Hewlett Packard closed trading at $15.44 on Friday, with a consensus analyst price target of $16.07 and a 52-week trading range of $11.63 to $18.50.