HPE reported a 22Q4 GAAP loss of $0.23 per diluted share vs. earnings of $0.31 in 21Q4. My estimate called for earnings of $0.37. All of the shortfall was due to a $905 million ($0.68 per share) goodwill impairment charge taken against its High Performance Computing and Artificial Intelligence (HPC & AI) and Software businesses. Excluding this charge and other adjustments, its non-GAAP EPS was $0.57, vs. $0.50 last year and my estimate of $0.57. Net revenue of $7.87 billion exceeded 21Q4’s $7.35 billion and my estimate of $7.57 billion. Free cash flow of $2.0 billion, was up 5.3% YOY and also matched my estimate.
22Q4 net revenue was the second highest on record for the company’s continuing operations. It was also HPE’s most profitable quarter on a non-GAAP basis since 2017. This shows that the company’s product and service offerings, especially its GreenLake edge-to-cloud platform, are resonating with customers. With solid order growth for the fiscal 2022, HPE begins its new fiscal year with a larger order book.
Despite ending the fiscal year on a strong note, management’s guidance anticipates only modest net revenue growth of 2%-4% and little or no improvement in profitability in 2023. Its GAAP EPS guidance of $1.38-$1.46 compares with fiscal 2022’s actual results of $0.66 (or $1.34 excluding the goodwill impairment charge). Non-GAAP EPS guidance of $1.96-$2.04 is essentially flat from 2022’s $2.02.
My projections are in line with that guidance. I have reduced my fiscal 2023 GAAP EPS estimate from $1.46 to $1.39 and my non-GAAP EPS estimate from $2.10 to $2.02. For fiscal 2024, I am projecting GAAP EPS of $1.52 and non-GAAP EPS of $2.09.
HPE’s stock has rallied 37% from its September low to close today at $16.20. Based upon the associated increase in HPE’s forward P/E multiples, I am raising my price target to $17.00 (from $15.00), which equates to 11.2 times projected fiscal 2024 GAAP EPS of $1.52 and 8.2 times projected non-GAAP EPS of $2.09. With the stock’s 3.0% dividend yield, that represents a potential total return of just under 8%. Consequently, I am also maintaining my performance rating of “3” (Neutral).
As long as the global economy sidesteps a potential recession and the headwinds to HPE’s performance – i.e. supply chain challenges, cost inflation and supply chain challenges – recede (or at least do not worsen), there should be more upside potential to HPE’s earnings outlook than downside risk over the next year.
This is a summary of my recent update report on Hewlett Packard Enterprise Company (HPE). To obtain a copy of the full report, please reach out to me using the contact information provided below.
December 15, 2022
Stephen P. Percoco
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Linden, New Jersey 07036
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