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Hewlett Packard Enterprise Co. (HPE) is an IT company that provides its users with intelligent solutions and cloud-based services. HPE's list of services includes storage devices, customized financial solutions, cloud service-based products, networking products, and more. The company’s list of clients includes large enterprises, both public and private, small and medium-sized enterprises, and financial, healthcare, manufacturing, and telecommunication companies.
Headquartered in Spring, Texas, HPE separated from HP (HPQ) nearly nine years ago. Valued at $26.17 billion by market cap, shares of Hewlett Packard Enterprise have gained 20.5% on a year to date basis, keeping pace with the performance of the broader S&P 500 Index ($SPX).
However, HPE trades about 10% below its 52-week highs, set in June - allowing investors to buy the dip on this AI hardware stock, which recently earned a consensus “Buy” rating on Wall Street.
HPE Beats on Earnings
Hewlett Packard Enterprise reported its fiscal third-quarter results earlier this month, with the company outshining analysts’ expectations. Total revenue of $7.71 billion was up 10% year over year, and topped Wall Street's $7.67 billion estimate. On the earnings front, HPE netted $512 million, or $0.50 per share on an adjusted basis, outperforming Wall Street’s $0.46 per share estimate.
Server revenue for Q3 arrived at $4.3 billion, up 35% from the year-ago period, with operating profit margin for the segment improving to 10.8% from 10.1% year over year.
“We are well positioned to capture share of the growing AI infrastructure market and expect to see the continuing benefit of our cost management efforts. We are confident in finishing the year strong and are raising EPS guidance as a result,” said the company’s CFO and executive vice-president, Marie Myers.
Management guided for Q4 revenue between $8.1 billion and $8.4 billion, with adjusted earnings expected in the range of $0.52 to $0.57 per share.
For the full year, HPE now anticipates adjusted EPS of $1.92 to $1.97, compared to its prior guidance of $1.85 to $1.95 per share. Analysts were targeting $1.92.
HPE also declared a regular cash dividend of $0.13 per share, which translates to a yield of 2.58% at current levels - more generous than the average S&P 500 component. During Q3, Hewlett Packard Enterprise returned $221 million to shareholders through dividends and share repurchases.
Analysts Warm Up to HPE
Last Wednesday, Barclays (BCS) upgraded the stock to an “Overweight” rating with a price target of $24. The analyst noted the company’s strength in the booming AI sector and expects continued advancement in AI server sales, improvements in storage, and benefits from the $14 billion Juniper Networks acquisition.
Recently, Bank of America (BAC) also raised its rating on HPE stock, citing the potential to dominate AI adoption due to their “decades of expertise in liquid cooling (CRAY systems) and increased adoption of supercomputing.”
The consensus rating on HPE is now a “Moderate Buy,” up from a lukewarm “Hold” previously. Priced at 10.28 times forward adjusted earnings, HPE looks like a reasonably valued AI stock to buy right now.
