Hewlett Packard Enterprise (HPE): Should I Buy The Stock Now?

By Amit Chowdhry ● May 15, 2020
  • Hewlett Packard Enterprise Co (NYSE: HPE) will be reporting its second-quarter fiscal results on May 21. Should you buy the company’s stock now? Here are some of the details you should know to help you decide.

Hewlett Packard Enterprise Co (NYSE: HPE) is going to be reporting its second-quarter fiscal results on May 21. During the fiscal first-quarter earnings conference call, Hewlett Packard Enterprise said that it is challenging to quantify the real impact of supply and demand disruptions caused by the COVID-19 pandemic.

The supply-chain disruptions caused by COVID-19 are expected to adversely impact Hewlett Packard’s fiscal second-quarter performance. China is known as a key market for HPE and COVID-19 might have hindered server sales there.

HPE is expected to deliver a year-over-year decline in earnings on lower revenues when it reports results for the quarter ended April 2020. The stock price may increase if the company beats expectations though. Analysts will be closely listening to what management will say about business conditions during the earnings call.

The Zacks Consensus Estimate reports that the company is expected to post quarterly earnings of $0.32 per share, representing a year-over-year change of -23.8%. And revenue is expected to be $6.48 billion, down around 9.4% from the year-ago quarter.

Executive Changes

HPE recently announced that CTO Mark Potter is retiring this summer. And HPE chief executive Antonio Neri explained that the company leadership will be set up under a new organizational structure to better position the company post-pandemic.

The company reorganization is linked to HPE’s pivot towards becoming a subscription-based service for its products along with serving optimization layers for multi-cloud deployments.

“Over recent weeks, I have evaluated our organizational structure to determine the model that will best enable our execution and transformation. The time is right for an organization where each one of our business groups, aligned to market trends and our own financial segmentation, directly reports to me,” wrote Neri in a blog post.

The seven HPE business group leaders include

Tom Blacks leads Storage – which includes primary storage, all-flash and hybrid storage, collaborative platforms, big data storage, and hyperconverged infrastructure solutions. These intelligent data platforms provide customers with performance, automation, and AI-powered analytics.

Pradeep Kumar leads Pointnext Technology Services – which includes all advisory, professional, and operational services delivered through the HPE Pointnext brand. This team is known for providing the strategy, technology planning, and consulting services that help customers navigate digital transformations from edge to cloud while optimizing cost and experience.

Neil MacDonald leads the Compute business – which will continue to help customers remove complexity, drive speed and agility, and unlock their fullest potential with HPE’s software-defined enterprise servers and solutions. The Compute operations include innovative solutions for ProLiant Servers (Rack and Tower), Synergy, Blades, OneView, and Cloudline Products.

Keerti Melkote leads the Intelligent Edge business group. This group oversees the operations of Aruba Networks, a company that HP acquired for $3 billion in 2015.

Irv Rothman leads HPE Financial Services. This unit helps customers capture value from older assets, achieve sustainability goals, invest in new technologies as a service, and get through financial volatility.

Pete Ungaro oversees High Performance Computing (HPC) and Mission Critical Solutions (MCS). The HPC and MCS teams are known for providing crucial digital transformation and Artificial Intelligence capabilities to customers involved in addressing some of the world’s most complex problems through data-intensive workloads. And The HPC & MCS portfolio includes Cray, Superdome Flex, Apollo, NonStop, Integrity, Moonshot, and Edgeline.

Keith White leads the new GreenLake Cloud Services. This group is the center of the company’s market-leading IT as-a-Service offering. And this team will provide customers with a consistent cloud experience for all of their applications and data wherever it resides whether it is at the edge, across public and private clouds, in co-locations, or in the data center consumed with a flexible pay-as-you-go model.

As Potter is retiring, Hewlett Packard Labs will now report to Pete Ungaro. And this alignment will more focus and innovation in areas that are critical to advancing our HPC offerings.

And Neri said a new dual role has been created that embraces the innovation agenda and the design and development of HPE’s software-defined portfolio. Kumar Sreekanti has been appointed Chief Technology Officer and Head of Software.

Due to the significance of their responsibilities in enabling the success of HPE’s strategy and operational execution, Pat Collins (who leads Global Operations) and Heiko Meyer (Chief Sales Officer) will also directly report to Neri.

HPE’s five global function leaders drive cross-enterprise experiences, capabilities, and services. These leaders will continue reporting to Neri as part of our Executive Committee including Jim Jackson (Chief Marketing Officer), Alan May (Chief People Officer), Tarek Robbiati (Chief Financial Officer), John Schultz (Chief Legal and Administrative Officer and Head of HPE’s Transformation Office), and Jennifer Temple (Chief Communications Officer).

Should You Buy Hewlett Packard Enterprise Co (NYSE: HPE) Now? 

Based on the reports I have been reading, 35% of analysts are saying buy, 52% of analysts are saying hold, and 13% are saying sell.

Mark Cash, Equity Research Analyst at Morningstar, pointed out that HPE should benefit from IT infrastructure upgrades. But he does not expect HPE to gain a long-term competitive advantage over peers that offer similar portfolios or pure-play companies focused on a sole aspect of HPE’s products.

Case From The Bulls

The bulls are saying that HPE is expected to do well with enterprises requiring cloud management and optimization services along with the pay-per-usage model potentially winning over customers. And the bulls believe it is wide to dedicate capital towards market opportunities like edge computing, hyperconverged infrastructure, and software-defined networking.

It’s worth mentioning that HPE met expectations for Q1 2020. And it beat expectations for Q4 2019, Q3 2019, and Q2 2019.

Case From The Bears

The bears pointed out that low margin commodity-based servers should remain as the largest portion of HPE’s revenue. And in targeted growth areas, HPE is facing larger companies and pure plays. Plus HPE’s hybrid cloud strategy is similar against its rivals so it will have to provide superior products and services while still dealing with cost pressures.

Disclosure: I own a small number of HPE shares. I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.