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Shares of Hewlett Packard Enterprise (HPE) closed up more than 5% on Tuesday, April 15 following a report that activist investor Elliott Investment Management has built a $1.5 billion stake in the server maker.
Elliott wants to help the company improve its shareholder value – but what in particular it plans on pushing for at HPE remains unclear for now.
The activist investor has a well-documented history of building sizable positions in technology companies and playing an active role in their turnaround efforts.
However, in the case of Hewlett Packard Enterprise, its stake may not be a strong enough reason to load up on HPE shares.
HPE Stock Is Significantly Exposed to Trump Tariffs
HPE remains unattractive despite reports of Elliott Management’s $1.5 billion stake mostly because it’s particularly vulnerable to President Donald Trump’s tariffs.
For server components and semiconductors, the multinational relies rather heavily on the likes of China, Taiwan, and South Korea. China currently faces import tariffs of 145%, and “reciprocal” tariffs on Taiwan and South Korea could restart following the current 90-day pause. While semiconductors have been exempted from tariffs so far, Trump has said that specific tariffs targeting semiconductors are likely to be announced soon.
The increased costs from these new tariffs could significantly disrupt pricing strategies and profit margins at the NYSE-listed Hewlett Packard Enterprise.
Note that HPE itself has acknowledged these challenges in its recent earnings calls. In fact, tariffs-related concerns have resulted in nearly 40% decline in its stock price over the past three months.
HPE Issued Disappointing Full-Year Guidance
Investors should practice caution in buying HPE stock also because its full-year guidance came in significantly below consensus in March.
According to Hewlett Packard Enterprise, its adjusted per-share earnings will likely fall between $1.70 and $1.90 this year – versus analyst expectations of $2.13.
HPE’s earnings were broadly expected to get a meaningful boost from its planned $14 billion acquisition of Juniper Networks (JNPR).
However, the U.S. Justice Department has sued to block that transaction, citing antitrust concerns as well.
Wall Street Continues to See Upside in HPE Shares
Despite a long list of challenges, HPE shares have not entirely fallen out of favor with Wall Street analysts.
The consensus rating on Hewlett Packard Enterprise still sits at “Moderate Buy” with the mean target of about $20, indicating potential upside of well over 30% from current levels.
