North America

Earnings Preview: Hewlett Packard Enterprise Q3 2017 (HPE)

By: Craig Bowles

Overview

Hewlett Packard Enterprise (HPE) is slated to report 3Q 2017 earnings after the close of trading on Tuesday, September 5th. Results are typically released at approximately 4:05 p.m. ET and will be followed with a conference call at 5:00 p.m. available through Hewlett Packard Enterprise Investor Relations.  Commercial technology products include Software and Financial Services segments. The Enterprise Group was sold. The company is a component of the Standard and Poor’s 500 Index, with results potentially impacting index futures.

Outliers & Strategy

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.24 to $0.28. The Street estimate is $0.26. (Source: Yahoo! Finance)
  • Revenues: Analysts expect $7.51 bln (range $7.17 bln to $7.75 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 4Q2017: The current Street estimate is $0.42 (range $0.30 to $0.49).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $1.46 to $1.56. The Street estimate is $1.45.
  • Price/Earnings of 13.9 vs industry avg of 27.1; Price/Book of 1.0 vs industry avg of 2.1; Price/Sales of 0.6 vs industry avg of 1.7; Price/Cash Flow of 9.8 vs industry avg of 6.6.
  • Analysts view HPE with 11 Buy, 15 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • HPE insiders sold 2,025,770 shares over the last three months and 6,759,032 shares over the past year. (source: NASDAQ.com) The company plans to return $3 billion through stock buybacks and dividends in FY2017.
  • Hewlett-Packard results could impact other computer hardware and software enterprises, such as IBM (IBM), Computer Sciences Corp. (CSC), and Accenture plc (ACN).
  • Hewlett Packard Enterprise shares have a 1-day average price change on earnings of 3.01% if including the history prior to the spin-off from the Hewlett-Packard hardware business. Options are pricing in an implied move of 4.67% off earnings.

Recent News

  • 08/30: Three of the most well-known activist funds (Starboard, Jana Partners, and Third Point) have quietly been accumulating HPE shares in recent months, according to a post on TheStreet.com.
  • 08/22: Loop Capital initiated coverage on HP Enterprise with a Hold rating but the stock could see as much as 50%, assuming HPE settles at around $13 after adjusting for the September 1, 2017 software spinoff, according to a post on StreetInsider.com.
  • 08/15: Morgan Stanley reiterated an Equal Weight rating on Hewlett Packard Enterprise citing that it’s going to take “a number of years” for the company to improve its operating profit margin given a raft of challenges from cloud computing to startup competitors, according to a post on Barron’s.com.
  • 08/10: Hewlett Packard Enterprise could regain the top spot in the Taiwan server market next year after Lenovo failed to renew an order from Taiwan Semiconductor, according to a post on SeekingAlpha.com.
  • 08/04: Hewlett Packard Enterprise announced August 21 as the record date for its Seattle SpinCo spin-off, which will contain the company’s software business.
  • 07/25: HPE CEO Meg Whitman was being considered for the Uber CEO job but wasn’t expected to take it, according to a post on recode.net.
  • 06/07: HPE’s “Discover” conference told analysts that pressure came from both “structural items, and one-time items,” that both are expected to abate later this year. Analysts worry about the decline in margins being structural and secular but Credit Suisse likes the series of new products and programs, such as 10th-Gen ProLiant Server, Aruba 8400 Core Switch and PointNext program, according to a post on Barron’s.com.

Technical Review

HP Enterprise shows a $19.09 May high but has generally found resistance above $18 since late 2016. Support has been coming in at around $16.50. The stock is again testing the high side of this area going into the earnings release similar to the past two quarters. (Chart courtesy of StockCharts.com)

Summary

CEO Meg Whitman remains as Uber hired Expedia’s CEO. Hewlett Packard Enterprise announced a separation of its Enterprise Services business, and merged it with Computer Sciences Corporation to create DXC Technology. The spin-off and the merger are currently expected to occur on September 1, 2017. The company completed a $1 billion acquisition of Nimble Storage in March. Insider selling remains relatively high. The company has beaten consensus estimates by an average of 1c over the past four quarters. Estimize consensus for Non-GAAP EPS of $0.27 on revenue of $7.776 bln compares to analyst consensus of $0.26 on revenue of $7.51 bln. Guidance is always of interest.

 

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