If the Department of Justice blocks Hewlett Packard Enterprise's acquisition of Juniper Networks, expect a change in the company's capital structure, a UBS analyst says. HPE stock has gained 39% over the last 52 weeks.
In early 2024, HPE agreed to buy Sunnyvale, Calif.-based Juniper Networks for $14 billion in cash. HPE expects the deal to be earnings and free-cash-flow accretive in the first year post-close. However, HPE added significant debt to finance the transaction.
The maker of computer servers, networking equipment and data storage systems could change its capital structure after raising cash for the Juniper deal if the DOJ takes action.
"According to reports, the DOJ is reviewing the pending Juniper acquisition," said UBS analyst David Vogt in a report on Wednesday. "While we don't have direct insight into what the DOJ is focused on, market share concentration is typically a point of concern."
Vogt added: "We would highlight that the wireless LAN market could be in focus, given market that on a global basis, we estimate Cisco Systems share is slightly below 40%. On a pro forma basis, we estimate Juniper/Aruba share would be in the low 20% (range). The two other vendors with material share (H3C and Huawei) primarily operate outside of the U.S. Therefore, Cisco, Juniper, and Aruba share would be even higher in the U.S., potentially raising the interest of DOJ."
HPE Stock Technical Rating
Additionally, Vogt noted that HPE would be required to pay Juniper a termination fee of $815 million if the deal falls through.
For the October quarter, HPE earnings rose 12% to 58 cents per share on an adjusted basis. Revenue rose 15% to $8.5 billion, the company said.
Meanwhile, fiscal Q4 revenue from artificial intelligence servers came in at $1.5 billion. That's up 16% from the previous quarter, vs. $900 million in fiscal Q3 and $400 million in the April quarter.
HPE stock holds an IBD Composite Rating of 88 out of a best possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
