Hewlett Packard Enterprise Struggles Amid Market Gains and Declining Margins

With a market capitalization of $22.1 billion, Hewlett Packard Enterprise Company (HPE) operates in the information technology sector, offering solutions designed to help customers effectively manage, analyze, and act on their data. Headquartered in Spring, Texas, the company concentrates on enterprise IT solutions, which include servers, storage, networking, and cloud services.

Over the past year, HPE’s stock performance has lagged behind the broader market. While the S&P 500 Index ($SPX) has appreciated by 12.3%, HPE’s shares have only increased by 2%. Year-to-date (YTD), HPE has seen a decline of 21%, compared to a modest 3.3% loss for the S&P 500.

Further narrowing the focus, HPE has also underperformed against the Technology Select Sector SPDR Fund (XLK), which has risen by 9.9% over the past 52 weeks. On a YTD basis, XLK has seen a reduction of 6.8%.

Following its mixed Q1 earnings report on March 6, HPE’s shares plummeted by 12% in the subsequent trading session. The company reported revenue of $7.9 billion, reflecting a 16.3% year-over-year increase that exceeded consensus estimates. This growth was primarily driven by strong performance in the server and hybrid cloud segments. However, both adjusted gross and operating margins experienced notable declines, resulting in an adjusted EPS of $0.49—a modest 2.1% increase from the prior year that fell short of analyst forecasts. Furthermore, free cash flow showed significant decline, moving from negative $482 million to negative $877 million.

Looking to fiscal 2025, HPE anticipates revenue growth between 7% and 11%, with adjusted EPS projected to fall within the range of $1.70 to $1.90. The company is also forecasting adjusted operating profit to decline by 10% or remain flat.

For the current fiscal year ending in October, analysts predict a 12.1% drop in HPE’s EPS to $1.52. The company’s history of earnings surprises has been mixed; it has surpassed consensus estimates in two of the last four quarters and missed in the other two.

Among the 15 analysts covering HPE, the consensus rating stands at “Moderate Buy,” comprised of six “Strong Buy,” one “Moderate Buy,” and eight “Hold” ratings. This outlook is slightly less optimistic than two months ago, when seven analysts had recommended a “Strong Buy.”

As of April 30, Amit Daryanani of Evercore Inc. (EVR) maintained a “Hold” rating on HPE, setting a price target of $17, indicating only marginal upside potential from current levels. The average price target for HPE is $19.86, which suggests a 17.8% potential increase, while the highest Street price target of $28 implies a substantial upside potential of 66.1%.

On the date of publication, Neharika Jain did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are provided solely for informational purposes.

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