North America

Earnings Preview: Hewlett Packard Enterprise Q4 2016 (HPE)

By: Craig Bowles

Overview

Hewlett Packard Enterprise (HPE) is slated to report 4Q 2016 earnings after the close of trading on Tuesday, November 22nd. Results are typically released at approximately after 4:05 p.m. ET and will be followed with a conference call at 4:30 p.m. available through Hewlett Packard Enterprise Investor Relations.  Commercial technology products include the Enterprise Group, Software, and Financial Services segments. The company is a component of the Standard and Poor’s 500 Index, with results potentially impacting index futures.

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Outliers & Strategy

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.58 to $0.63. The Street estimate is $0.61 (range $0.59 to $0.62). (Source: Yahoo! Finance) Consensus was $0.60 three months ago.
  • Revenues: Analysts expect $12.85 bln (range $12.34 bln to $13.40 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 1Q2017: The current Street estimate is $0.46 (range $0.42 to $0.51).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $2.00 to $2.10. (updated in October) The Street estimate is $2.06 (range $1.96 to $2.13).
  • Price/Earnings of 9.2; Price/Book of 1.2; Price/Sales of 0.8; Price/Cash Flow of 16.6.
  • Analysts view HPE with 13 Buy, 14 Hold, and 2 (1 last qtr) Sell ratings. (source: MarketBeat.com)
  • HPE insiders sold 1,603,128 shares over the last three months and 2,053,376 shares over the past year. (source: NASDAQ.com) The company did 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 4.64% if including the history prior to the spin-off from the Hewlett-Packard hardware business. Options are pricing in an implied move of 6.27% off earnings.

Recent News

  • 11/10: Wells Fargo maintains a Market Perform rating on Hewlett Packard Enterprise but could get more positive after the spin-off of the consulting business to company jointly owned by Computer Sciences (CSC) is complete allowing greater visibility for FY2018, according to a post on Barron’s.com.
  • 10/19: UBS reiterated a Buy rating on Hewlett Packard Enterprise and is satisfied with “GDP-like growth” given that gross margin will be under pressure, which it looks to offset with mix shift toward networking and storage along with cost reductions, according to a post on Barron’s.com.
  • 10/12: Susquehanna Financial Group believes that recently announced spinoffs combined with other divestitures are set to materially increase HPE’s operating net cash to as much as about $9 billion exiting fiscal 2017, according to a post on Barron’s.com.
  • 09/19: Bernstein has an Outperform rating on Hewlett Packard Enterprise and suggests possible acquirers include strategic buyers (Huawei, Lenovo, Tsinghua, Oracle, Cisco and Dell), but all appear to have stumbling blocks, according to a post on Barron’s.com.
  • 09/17: CEO Meg Whitman has been spinning off units and focusing on more profitable products. This is a change from her earlier efforts which resulted in dubious acquisitions and lost market share, according to a post on Barron’s.com.

Technical Review

HP Enterprise began trading at $18.50 on October 19, 2015 and finally pushed above that level this past summer. (Chart courtesy of StockCharts.com)

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Summary

Analysts believe Hewlett Packard Enterprise has become more focused following spinoffs and divestitures. Insiders increased their selling over the last three months. The company beaten consensus estimates by an average of 2c over the past three quarters. Estimize consensus for Non-GAAP EPS of $0.63 on revenue of $12.756 bln compares to analyst consensus of $0.61 on revenue of $12.85 bln. Guidance for next quarter and any change in expectations for FY2017 would be of interest.

 

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