HPE reported 26Q1 GAAP EPS of $0.32 vs. 25Q1’s EPS of $0.27 and my estimate of $0.40. Net revenue increased 18.4% to $9.3 billion primarily because of the Juniper Networks acquisition. On a normalized basis, including Juniper’s pre-acquisition 25Q1 revenues, HPE’s revenues increased 7%. Cloud & AI segment revenues decreased by 2.7%, on lower server sales; but operating profit increased 17.9%, due to price increases and belt tightening. On a consolidated basis, gross margin rose by 720 bp to 36.6%, due to Juniper and pricing. This was partially offset by an 440 bp increase in HPE’s operating expense ratio to 22.9%, due mostly to Juniper. Thus, earnings from operations soared 48.2%, as operating margin rose 280 bp to 13.7%. Non-GAAP EPS rose 39.8% to $0.65. above my estimate of $0.51.
Management characterized the quarter as strong, with revenue growth at the high end of guidance and free cash flow of $708 million, vs. 25Q1’s $877 million cash burn. Catalyst, HPE’s modernization and cost savings initiative, and the integration of Juniper are on track. The industry continues to face component shortages, most notably in DRAM and NAND memory chips, which are raising production costs, cooling demand and squeezing margins, especially in servers.
HPE is addressing these problems proactively, taking steps to secure its supply of key components and passing on price increases promptly. Its ability to raise margins in 26Q1 is remarkable, especially since DRAM and NAND account for half of material costs. Still, the company is benefiting from a refreshed and competitive product portfolio, including AI applications (i.e. networking for AI and AI for networking), and continued growth in its Greenlake cloud service platform.
Management now anticipates fiscal 2026 revenue growth of 17%-22% as reported (5%-10% normalized); GAAP diluted EPS of $1.02-$1.22, non-GAAP EPS of $2.30-$2.50 and free cash flow in excess of $2 billion. My fiscal 2026 projections, which are in line with guidance, now show net revenue of $40.5 billion, up 18.0%, GAAP EPS of $1.18 and non-GAAP EPS of $2.49. For fiscal 2027, I project net revenue of $41.9 billion, up 3.5%, GAAP diluted EPS of $1.31 and non-GAAP EPS of $2.26. While Networking is poised for solid growth, the longer-term concern is growth and profitability in Cloud & AI.
YTD, HPE’s stock has delivered a total return of 8.5%, better than the 3.2% for the S&P 500 and estimated 3.7% for the S&P 500 Info Tech sector. I am raising my price target from $25 to $30. That equates to forward multiples of 23.0 times projected 2027 GAAP EPS and 11.8 times 2027 non-GAAP EPS, still well below the peer group average of 19.5 times non-GAAP EPS. At yesterday’s closing price of $25.89, the stock has a potential total return of 18.1%, including its 2.2% dividend yield. Although the market looks overbought at this time, I am raising my performance rating from “3” (Neutral) to “2” (Outperform), despite my longer term concerns about Cloud & AI and certain financial reporting issues. With Networking now 50% of profits and growing, HPE is aiming for Cisco’s valuation of 18.7 times fiscal 2027 non-GAAP EPS.
This is a summary of my recent update report on Hewlett Packard Enterprise Company (HPE). To obtain a copy of the report, please reach out to me using the contact information provided below.
April 21, 2026 (Report published on April 17, 2026.)
Stephen P. Percoco
Lark Research
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© 2015-2026 by Stephen P. Percoco, Lark Research. All rights reserved.
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