HPE reported 24Q4 GAAP diluted EPS of $0.99 vs. 23Q4’s $0.49. Non-GAAP EPS was $0.58 vs. $0.52. Net revenue of $8.46 billion rose 15.1% vs. last year and exceeded my estimate of $8.25 billion. GAAP EPS was above my estimate of $0.82, but non-GAAP EPS was below my $0.65 estimate. Most of the differences were due to a higher gain on the sale of the H3C stake than I had projected, which was excluded from non-GAAP EPS. Operating earnings were 4% below my projections. Free cash flow of $1.5 billion was double 23Q4’s $669 million and exceeded my estimate of $1.2 billion.
Management attributed the double-digit gain in net revenue to the growth of HPE Greenlake and AI. Results for revenue, diluted EPS and free cash flow exceeded its expectations. Revenues grew sequentially in each of HPE’s segments. Server revenue was a record $4.7 billion, up 31% YOY. AI systems revenue rose 16% to $1.5 billion. Hybrid cloud revenue grew 18% to $1.6 billion. Intelligent Edge revenue was up slightly sequentially, but down 20% YOY. That business has hit a soft patch which is weighing on HPE’s profitability, but management said that orders grew for the third consecutive quarter, including a double-digit gain in data center networking, an important growth market.
While the acquisition of Juniper Network still awaits approval from the U.S. Dept. of Justice, management said that it expects that it will be approved and will close in the first half of 2025. I expect that the company will hold its delayed Securities Analyst meeting shortly after the acquisition closes and provide full year fiscal 2025 guidance at that time. For now, though, the company has issued guidance for 25Q1 only. For that quarter, it expects mid-teens percent revenue growth, GAAP diluted EPS of $0.31-$0.36 and non-GAAP diluted EPS of $0.47-$0.52.
My 25Q1 projections are consistent with guidance. I also assume that the Juniper acquisition will close in 25Q2 and my estimates include the impact of the acquisition on HPE’s performance for the balance of the year. Thus, I anticipate fiscal 2025 total net revenue of $36.9 billion, up 22.5%, GAAP EPS of $1.02 and non-GAAP EPS of $2.00. For fiscal 2026, my projections show total net revenue of $39.3 billion, GAAP EPS of $1.10 and non-GAAP EPS of $2.20.
Since my last report (Sept. 24), HPE’s stock has advanced 27.2%, far outpacing the S&P 500’s 6.8% gain and the S&P 500 Info Tech sector’s 8.9% gain. It surged 10.8% yesterday following the earnings announcement. With that advance, the stock closed just below my price target of $24 and is now overbought technically, so I expect that it will spend some time consolidating its gains. As a result, I am maintaining my $24 price target, which I will revisit when the company issues its full year guidance. The $24 price target now equates to 22.0 times projected fiscal 2026 GAAP EPS of $1.10 and 11.0 times non-GAAP EPS of $2.20. It represents a potential total return of 2.4% from the current quote, a little higher than its 2.2% dividend yield. Accordingly, I am lowering my performance rating from “1” (Buy) to “3” (Neutral).
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.
December 10, 2024 (Report published on December 7, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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