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Hewlett Packard Enterprise Company (HPE), which split from its partner stock HP (HPQ) nearly a decade ago, is a Texas-based information technology (IT) company providing software and hardware solutions to organizations. Its main segment products are compute servers, networking equipment, and storage arrays alongside a popular computing business. With worldwide operations and more than 60,000 employees, the company’s stated target is to become a complete edge-to-cloud company that enables hybrid clouds and hyperconverged infrastructure.
Thanks to optimism over its involvement in artificial intelligence (AI) servers, Hewlett-Packard’s stock has seen strong momentum this year. HPE is up more than 28% YTD, easily outperforming the broader market, and has surged by 25.2% in the last month alone.
HPE is now valued at $27.17 billion by market cap, and pays a quarterly dividend of $0.13 per share. The annual payout of $0.52 translates to a yield of 2.39%.
HPE Pops After AI-Fueled Earnings Beat
Hewlett-Packard reported its fiscal Q2 results last week on June 4, and gained 10.7% the following session as investors reacted to the better-than-expected results. HPE reported revenue of $7.2 billion for the quarter, up 3% year over year, and beating estimates of $6.8 billion. Earnings came in at $0.42 per share, better than Wall Street’s $0.39 consensus.
“AI systems revenue more than doubled from the prior quarter, driven by our strong order book and better conversion from our supply chain,” said CEO Antonio Neri. “Our deep expertise in designing, manufacturing, and running AI systems at scale, fueled growth of cumulative AI systems orders to $4.6 billion dollars, with enterprise AI orders representing more than 15%.”
Server revenue increased 18% to $3.9 billion, while revenue from Intelligent Edge and Hybrid Cloud fell 19% and 8%, respectively. The company’s free cash flow came to $610 million, increasing 111% YoY.
For the current third quarter, management raised its guidance to call for $7.4 billion to $7.8 billion in revenue, and adjusted EPS in the range of $0.43 to $0.48. Management also upped its full-year guidance, and now expects 2024 earnings between $1.85 to $1.95 per share, on an adjusted basis.
CFO Marie Myers attributed the guidance hike to “our robust AI systems order momentum and disciplined execution across our entire portfolio.”
Is HPE Stock Undervalued?
Collectively, analysts do not have a high rating for HPE stock. The server specialist has a consensus “Hold” rating among 14 analysts in coverage, with only 21% “Buy” or better ratings.
Plus, the mean price target of $19.50 signifies expected downside potential of 10% from current levels.
However, HPE could be due for a re-rating. The stock was recently upgraded from to “Buy” from “Hold” at Argus, with analyst Jim Kelleher noting how HPE trades at “inexpensive current valuations” that don’t reveal its potential in its top- and bottom-line revitalization as it participates in the AI market.
HPE is priced at less than 10x projected 2025 earnings and 0.88x sales, which is considerably lower than the tech industry median.
"In our view, HPE is well positioned in the AI and cloud space based on its strong position in ISS server and now GPU server compute, its leading position in supercomputers via its Cray asset, its strong as-a-service positioning via HPE Greenlake, and key relationships with partners including Nvidia (NVDA)," wrote Kelleher, who has a price target of $26 for HPE. That suggests upside potential of 19.5% from Thursday's close.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
