HPE reported 25Q1 GAAP diluted EPS of $0.44 vs. 24Q1’s $0.29. Non-GAAP EPS was $0.49 vs. $0.48. Net revenue of $7.85 billion was 16.3% higher than last year and exceeded my estimate of $7.54 billion. EPS was above my estimates of $0.35 (GAAP) and $0.48 (non-GAAP). The excess in earnings over my GAAP estimate was due to a $244 million ($0.17 per share) gain on sale of the Communications Technology Group (CTG). This was excluded from non-GAAP EPS, but higher acquisition/divestiture related expenses and restructuring costs more than offset the CTG gain. Operating earnings were 32% below my projections due mostly to margin pressure in the server business (as well as the loss of CTG earnings). HPE recorded a free cash flow outflow of $0.9 billion, worse than 24Q1’s $0.4 billion outflow.
On Jan. 30, the U.S. Justice Dept. filed suit to block the proposed merger of HPE and Juniper Networks (JNPR). In response, the companies have vowed to fight the decision. They assert that the government’s reasoning is flawed, as the EU and UK authorities have approved the merger. However, this would be a horizontal merger of the #2 and #3 players in the enterprise wireless local area networking industry. The Justice Dept. often opposes such mergers because of the risk that reduced competition could lead to higher prices, less innovation and fewer choices for customers. HPE is required to buy back $6 billion of $9 billion in debt financing if the merger is cancelled. It also has the option to buy back $1.5 billion of mandatory convertible preferred stock. Unless the waiting period is extended, the debt must be repurchased in early October. I have revised my projections to exclude the merger, even though it is still an open issue.
HPE’s stock fell sharply on March 7, the day after it issued 25Q1 earnings, and dipped again in early April to a new 52-week low of $11.94, a drop of 51.5% from its Jan. 22 all-time high of $24.66. The decline opened the door for activist investor Elliott Management to take a $1.5 billion position in HPE’s stock, making it one of HPE’s five largest shareholders. News reports speculate that Elliott wants to replace HPE CEO Antonio Neri and HPE’s Board of Directors is reportedly meeting within the next few days to consider that demand. I would be surprised if Mr. Neri is replaced, but I think that it is highly likely that Elliott will usher in a new round of restructuring at HPE which may be as or perhaps more extensive than the company’s two prior multi-year transformation programs, both of which were completed at the end of 2024.
My revised fiscal 2025 projections, which are consistent with management’s guidance, now show revenue growth of 7%, GAAP EPS of $1.18 and non-GAAP EPS of $1.80. For 2026. I project revenue growth of 3.2%, GAAP EPS of $1.32 and non-GAAP EPS of $1.90. With the drop in HPE’s stock, I have lowered my price target from $24 to $20. The new target equates to forward valuation multiples of 15 times projected 2026 GAAP EPS and 10.5 times non-GAAP EPS. It represents a potential total return of 35.5%; so I have raised my performance rating on HPE’s stock from “3” (Neutral) to “1” (Buy).
This is a summary of Lark Research’s update report on Hewlett Packard Enterprise Company (HPE). To obtain a copy of the report, reach out to Steve Percoco using the contact information provided below.
June 20, 2025 (Report published on April 28, 2025.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2025 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.
You must be logged in to post a comment.