Did HP Enterprise Lose Ground To Cloud Competitors In Fiscal Q2?

HP Enterprise (NYSE:HPE) reports its fiscal Q2 results on May 23. The company’s fiscal Q1 results had beaten consensus earnings expectations comfortably despite revenues coming in below estimates. HPE has operated in a market dominated by large cloud vendors through its partnership with system integrators. The company recently entered into a partnership with Nutanix to further its hybrid cloud ambitions, and this should have had a positive impact on its top line. Also, we will be looking for management commentary around the extent of cannibalization by the company’s cloud business on its hardware sales.

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 2019 Revenues, Earnings and Share Price 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. Also, you will find more technology company data here.

A Quick Look At HPE’s Revenue Sources

HPE makes money through solutions that capture and analyze data across different endpoints of the network (edge to the cloud). The company reports its revenue ($30.8 billion in 2018) in four segments:

• Hybrid IT ($25 billion in 2018, 79% of total revenue): Segment revenue is derived from the sale of servers, storage, data center networking and professional services offerings.
• Intelligent Edge ($2.9 billion in 2018, 9% of total revenue): Segment revenue is derived from the sale of enterprise networking and security solutions. The segment houses the Aruba brand of offerings.
• Financial Services ($3.7 billion in 2018, 12% of total revenue): Segment revenue is derived from the sale of financing of customer IT consumption.
• Corporate Investments (Negligible revenues): This segment houses Hewlett Packard Labs and business incubation projects.

Revenue trends over recent years, and expectations for fiscal 2019

HPE added $1.1 billion over 2016-2018 (at a CAGR of 2%)

• Hybrid IT revenue reached $25 billion in 2018 from $25.1 billion in 2016. We expect these revenues to decline further to $24.1 billion (-3.7% y-o-y)
• Intelligent Edge revenue reached $2.9 billion in 2018 from $2.7 billion in 2016. We expect 2019 revenue to reach $3.1 billion (5% y-o-y)
• Financial Services revenue reached $3.7 billion in 2018 from $3.2 billion in 2016. We expect 2019 revenue to remain largely around the same level of $3.7 billion (0.5% y-o-y)

We forecast HPE’s EPS figure for full-year 2019 to be $1.42. Taken together with our forward P/E multiple of 13x for the company, this works out to a $18 per share price estimate for the company’s stock, which is about 20% ahead of the current market price.

Do not agree with our forecast? Create your own price forecast for HPE by changing the base inputs (blue dots) on our interactive dashboard.