What to Expect From Hewlett Packard Enterprise Earnings

Hewlett Packard Enterprise Co. (NYSE: HPE) is scheduled to report its fiscal second-quarter financial results after the markets close on Tuesday. The consensus estimates from Thomson Reuters call for $0.42 in earnings per share (EPS) on $12.35 billion in revenue.

After historically taking a siloed approach to managing the business, this company is working to integrate its research and development (R&D) and go-to-market efforts across product areas and business units. Considering its leading presence in each major information technology (IT) hardware segment and IT services, a few analysts believe that Hewlett Packard Enterprise has a unique opportunity to emerge as a leading IT provider.

Hewlett Packard Enterprise has reinvested in R&D to drive innovation and refresh its stale product portfolio. R&D expenses increased 19.5%, or 9.3% as a compound average growth rate, since fiscal 2013. This represented 4.5% of revenue in fiscal 2015 versus 3.4% in fiscal 2013. The increased investment is already showing up in the Enterprise Group’s portfolio with upgraded servers, traction in All-Flash arrays and most recently the addition of hyperconverged solutions.

The company’s efforts to improve operating margin offer significant upside potential. Targeting Enterprise Services margin of 7% to 9% by fiscal 2018, it is reducing headcount (25,000 to 30,000 employees), consolidating service centers and shifting headcount to lower-cost locations. Illustrating the potential upside, Oppenheimer estimated that for each percentage point there is in Enterprise Services margin, there is an increase of $0.08 in incremental earnings per share.
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A few analysts weighed in on Hewlett Packard Enterprise prior to the release of the earnings report:

• Wells Fargo reiterated a Positive rating.
• Oppenheimer reiterated a Buy rating with a $21 price target.
• Credit Suisse reiterated a Buy rating.
• Sterne Agee CRT reiterated a Neutral rating.
• BMO reiterated a Buy rating with a $23 price target.

So far in 2016, Hewlett Packard Enterprise has outperformed the broad markets, with the stock up 6%. This company only split up back in mid-October of 2015.

Shares of Hewlett Packard Enterprise were trading at $16.08 late Tuesday morning, with a consensus analyst price target of $17.59 and a 52-week trading range of $11.63 to $18.55.