Hewlett Packard Enterprise Company (HPE), which separated from its partner company HP (HPQ) nearly a decade ago, is a Texas-based information technology (IT) company that provides software and hardware solutions to organizations. Its main segmented products are computing servers, networking equipment, and storage arrays, as well as the popular computing business. With operations across the globe and over 60,000 employees, the company aims to become a complete edge-to-cloud company that enables hybrid cloud and hyperconverged infrastructure.
Hewlett-Packard Co. shares have been on a strong run this year thanks to optimism about its artificial intelligence (AI) server efforts: HPE shares are up more than 28% so far this year, significantly outperforming the broader market, and have surged 25.2% in the last month alone.
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HPE currently has a market cap of $27.17 billion and pays a quarterly dividend of $0.13 per share. Its annualized dividend of $0.52 equates to a yield of 2.39%.
HPE surges as AI-driven profits exceed expectations
Hewlett-Packard released its second-quarter earnings last week on June 4, and its stock price rose 10.7% in the following trading session as investors reacted to the better-than-expected results. The company reported second-quarter sales of $7.2 billion, up 3% from the same period last year and beating expectations of $6.8 billion. Earnings per share were $0.42, beating the Wall Street consensus estimate of $0.39.
“AI systems revenue more than doubled from the previous quarter driven by our strong bookings and improved conversion rates from our supply chain,” said CEO Antonio Neri. “Led by our deep expertise in designing, manufacturing and operating large-scale AI systems, our cumulative AI systems bookings increased to $4.6 billion, of which enterprise AI bookings represented more than 15%.”
Server revenue increased 18% to $3.9 billion, while intelligent edge and hybrid cloud revenue declined 19% and 8%, respectively. The company’s free cash flow was $610 million, up 111% year over year.
Management raised its third-quarter guidance, predicting revenue of $7.4 billion to $7.8 billion and adjusted EPS in the range of $0.43 to $0.48. Management also raised its full-year outlook, now expecting adjusted earnings per share of $1.85 to $1.95 in 2024.
Chief Financial Officer Marie Myers attributed the increased guidance to “order momentum for our strong AI systems and disciplined execution across our portfolio.”
Is HPE stock undervalued?
Analysts overall don’t give HPE stock high marks, with the server specialist seeing a consensus of “hold” ratings among the 14 analysts covering it, and just 21% rating it “buy” or higher.
Additionally, the average price target of $19.50 indicates a potential downside of 10% from current levels.
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But it may be time for a reassessment of HPE. Argus recently upgraded the stock to a buy rating from hold. Analyst Jim Kelleher wrote that HPE is trading at a “currently cheap valuation” that doesn’t address the potential for a revenue and profit revival from its push into the AI market.
HPE shares trade at less than 10 times projected 2025 earnings and 0.88 times sales, well below the technology industry median.
“In our view, HPE is well positioned in the AI and cloud space based on its strong position in ISS servers and GPU server computing, its leading position in supercomputing with its Cray assets, its strong as-a-service position with HPE Greenlake, and its important relationships with partners including Nvidia (NVDA),” Kelleher wrote. He has a $26 price target on HPE, suggesting a 19.5% upside potential from Thursday’s closing price.
On the date of publication, Ruchi Gupta did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information please see Barchart’s disclosure policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
