Hewlett Packard Enterprise (HPE) 23Q4 Update

HPE reported 23Q4 GAAP diluted EPS of $0.49 vs. 22Q4’s loss of $0.23 and my estimate of $0.38.  Non-GAAP EPS of $0.52 was a nickel below last year and three cents above my estimate of $0.49.  Net revenue of $7.35 billion was down 6.6% from 22Q4 but down only 0.3% from my estimate of $7.38 billion.

The decline in revenue was due to a tough comparison against a strong prior year quarter.  The pace of order growth moderated in fiscal 2023, as evidenced by 23Q4 revenues.  Yet, earnings from operations were $507 million vs. a loss of $339 million in 22Q4, due to a $905 million impairment charge taken against the HPC & AI and Software businesses.  Excluding that and other specified items, the company’s non-GAAP operating margin increased by 20 bp to 10.3%.

Fiscal 2023 non-GAAP EPS of $2.15 was at the high end of management’s previously upwardly revised guidance.  Management has set fiscal 2024 GAAP EPS guidance at $1.81-$2.01 and reaffirmed its non-GAAP EPS guidance of $1.82-$2.02, which was established at its Securities Analyst Meeting (SAM) in October.  It expects fiscal 2024 revenue growth to be in the range of 2%-4% at constant currency.

Prior to SAM, I had been projecting fiscal 2024 non-GAAP EPS of $2.20, so the earnings guidance was disappointing.  Even so, the reduced outlook is consistent with the drop in 23Q4 revenue, which establishes a lower growth base, and the company’s guarded assessment of its business outlook in light of the slowing global economy and more cautious spending patterns of its customers (as described in its 10-K).

My projections anticipate fiscal 2024 revenue of $29.8 billion, up 2.3%, GAAP EPS of $2.02 and non-GAAP EPS of $1.92.  They assume that HPE will record a $1.3 billion pre-tax profit in 24Q3 from the $3.5 billion sale of its 49% stake in its Chinese affiliate, H3C Technologies.  For fiscal 2025, I am now projecting revenues of $30.8 billion, up 3.4%, GAAP EPS of $1.47 and non-GAAP EPS of $2.14.

Since my last report, HPE’s stock has declined 4.2%, underperforming the S&P 500’s 5.0% gain and the S&P 500 Info Tech sector’s 5.1% gain.  I am maintaining my price target of $19, which equates to 13 times projected fiscal 2025 GAAP EPS of $1.47 and 9 times non-GAAP EPS of $2.14.  With the stock’s underperformance since early September, HPE’s potential total return, including its 3.1% dividend yield, is now 14.8%; so I am raising my performance rating from “3” (Neutral) to “2” (Outperform).

This is a summary of my recent report on Hewlett-Packard Enterprise Co. (HPE). To obtain a copy of the full report, please reach out to me using the contact information provided below.

January 8, 2024. (Report published on January 4, 2024.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

© 2015-2024 by Stephen P. Percoco, Lark Research.   All rights reserved.

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