HPE reported 23Q3 GAAP diluted EPS of $0.35 vs. 22Q2’s $0.31 and my estimate of $0.35. Non-GAAP EPS of $0.49 was a penny above last year and two pennies above my estimate of $0.47. Net revenue of $7.00 billion was up 0.7% over 22Q3 and 1.5% above my estimate.
The improvement in profit was driven by HPE’s focus on transitioning toward higher value-added products and services, which carry higher profit margins. While the overall IT market is still pressured as customers remain cautious in their spending, they continue to prioritize key areas, such as artificial intelligence (AI) and cloud-based, as-a-service (aaS) offerings, such as those available on the HPE Greenlake platform.
Net revenue in HPE’s Intelligent Edge (IE) business surged 50% to $1.4 billion, but this was offset by a 13.3% decline in Compute revenue to $2.6 billion. IE contributed 20% of HPE’s revenue and 49% of its segment operating profit in 23Q3. The business is gaining market share and enjoys strong demand for its aaS offerings. Growth in those offerings contributed to the 48% YOY increase (to $1.3 billion) in the annualized run rate (ARR) of HPE’s aaS revenues. Demand for its artificial intelligence and supercomputing offerings remains solid, even though its HPC & AI segment still operates at breakeven profitability.
As a result of 23Q3 results, HPE has raised and narrowed its fiscal 2023 non-GAAP earnings guidance from $2.06-$2.14 to $2.11-$2.15. Its fourth quarter revenue guidance implies that revenues will be up 1.8%-2.8% for the full year, but still within its guidance of 4%-6% growth on a constant currency basis.
HPE will provide fiscal 2024 guidance at its Securities Analyst meeting in October. At that meeting, it will also discuss its expectations for the anticipated $3.5 billion sale of its equity stake in H3C Technologies. The receipt of proceeds from the H3C sale is important because HPE faces $6.3 billion of debt repayments over the next 25 months, including $1.55 billion of 5.9% Senior Notes due 10/1/24 that were issued in March and June. I had previously included the H3C sale in my projections for fiscal 2023. Shifting it now to fiscal 2024, my projections anticipate GAAP diluted EPS of $2.32 and non-GAAP EPS of $2.20.
Since my last report, HPE’s stock has advanced another 13.2%, exceeding the S&P 500’s 4.4% gain and the S&P 500 Info Tech sector’s 5.9% gain. I am raising my price target to $19, which equals about 8 times my 2024 GAAP EPS estimate of $2.32. With its rally over the past six weeks, HPE’s upside is now less than 10%; so I am lowering my rating from “2” (Buy) to “3” (Neutral).
This is a summary of my recent report on Hewlett Packard Enterprise Company (HPE), which was published on September 6, 2023. To obtain a copy of the full report, please reach out to me using the contact information provided below.
September 7, 2023
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.