What Is The Outlook For HP Enterprise?
HP Enterprise (NYSE:HPE) has been benefitting from a strong demand environment. The company has seen robust growth on the back of growth in the Intelligent Edge business. While the company’s management has guided for 6% revenue growth for the current fiscal year, The U.S.-China trade disagreements and cyclical weakness in storage could cause the outlook for the next fiscal year to weaken.
We currently have a price estimate of $18 per share for HPE, which is around 20% higher than the current market price. Our interactive dashboard on HPE’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.
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A rising tide lifts all boats, and HPE may have primarily been benefitting from the increase in IT spending overall. In the company’s Q3 earnings call, management noted that of the $0.07 EPS beat, $0.02 was operational, $0.03 was primarily driven by FX, and $0.02 was due to the favorable tax rate.
However, HPE’s growth on the back of operational improvements cannot be discounted. The company continues to undertake measures to cut costs by reducing the number of SKUs by 75% and transitioning to a partner-led model in EMEA. HPE is also investing in the high-growth areas of edge, software-defined, artificial intelligence and cloud.
We expect the company’s business momentum to continue. However, since a large part of HPE’s outperformance has been predicated on external factors also, we take note of the possibility of an adverse market environment impacting the company negatively. One of the key areas of the company’s focus, the Intelligent Edge segment, may be more prone to weakness. Despite Q3 revenue for the Intelligent Edge segment growing by 10% y-o-y, its operating margin contracted by 300 bps on a y-o-y basis due to investments in sales and R&D.
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