HPE reported 24Q2 GAAP diluted EPS of $0.24, below 23Q4’s $0.32. Non-GAAP EPS was $0.42 vs. $0.52 last year. Net revenue of $7.20 billion rose 3.3%. Results beat the consensus estimates of $6.83 billion for revenue and $0.39 for EPS. Both came in above the high end of management’s guidance.
The decline in profitability vs. the prior year was due mostly to less favorable product mix in the Intelligent Edge and Server segments. R&D expense was higher, as HPE is increasing its investments across its portfolio. SG&A expense declined 3.8%, due to lower employee costs and lower travel and marketing expenses.
Management reported progress in several key areas: AI systems revenue more than doubled from the first quarter (as the company caught up on orders that were delayed in 24Q1). Cumulative AI orders reached $4.6 billion this quarter, up from $0.8 billion a year ago. HPE Greenlake adoption continues to expand, as HPE’s annualized revenue run-rate (ARR) for consumption services grew 39% YOY. The traditional infrastructure market – servers, storage and networking – continues to improve. As a result, management raised its full-year revenue and non-GAAP EPS guidance.
HPE now expects revenue growth of 1%-3%, up one point, and non-GAAP diluted EPS of $1.85-$1.95, up $0.03. My projections, which are consistent with guidance, call for revenue of $29.5 billion, up 1.3%, GAAP EPS of $1.70 and non-GAAP EPS of $1.92. Included in 2024 GAAP EPS is an estimated pre-tax gain of $697 million on the sale of its 30% stake H3C in 24Q4. HPE expects to exercise its put option for the remaining 19% stake within 16-36 months after the sale.
Since my last report (Jan. 4), HPE’s stock is up 21.6%, better than the S&P 500’s 16.3% gain, but below the S&P 500 Info Tech sector’s 33.8%. On Jan. 9, HPE agreed to acquire Juniper Networks (JNPR), a leader in AI-native networks, for $40 per share or $14 billion. Besides the better-than-expected 24Q2, HPE’s stock (like DELL and AVGO) has lately been riding the coattails of NVIDIA (NVDA), an AI focused, computing infrastructure company whose stock has risen 155% YTD. My 2025 HPE projections do not incorporate the JNPR acquisition, but I offer some thoughts on it in my full report.
I am raising my price target from $19 to $24, which equates to 16.5 times projected fiscal 2025 GAAP EPS of $1.46 and 11.0 times non-GAAP EPS of $2.14. My 2025 GAAP estimate is lower, but non-GAAP estimate is unchanged. Assumed forward valuation multiples are higher, but remain at a discount to peers. Thus, HPE’s stock has a potential total return, including its 2.5% dividend yield, of 17%; so I am maintaining my performance rating of “2” (Outperform).
After gapping up on earnings, HPE’s stock rose sharply until June 18; but it has since begun to give back those gains. From a technical point of view, the stock could conceivably backfill its recent gap up, which could bring it back to $18-$19 before resuming its advance. Besides the general economic trends, HPE’s longer-term upside potential depends in large part upon its success in integrating JNPR and the ultimate uptake of AI-related products and services.
This is a summary of my update 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.
June 30, 2024 (Report published on June 24, 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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