HPE reported a 25Q2 GAAP diluted loss of $0.82 per share vs. 24Q2’s income of $0.24. The loss was due to a $1.36 billion ($1.03 per share) impairment charge taken against HPE’s Hybrid Cloud business. The charge was prompted by an increase in the weighted average cost of capital (used to value the business), which was attributed to changes in financial markets and macroeconomic environment from the tariff talk and geopolitical concerns. Non-GAAP EPS was $0.42, matching the prior year and above my estimate of $0.30. Net revenue of $7.63 billion was 5.9% higher than last year and exceeded my estimate of $7.44 billion.
Excluding the impairment charge, operating earnings were 35% below my projections, due to a 460 bp decline in gross margin. Most of the decline in gross margin came from the Server segment, whose earnings fell 44%, even though revenues increased 4.3%. The decline in Server earnings was partially offset by improved earnings in the Hybrid Cloud and Intelligent Edge businesses. Despite the drop in gross margin, management said that it saw improving margins over the course of the quarter, giving it the confidence to raise the low end of its fiscal 2025 non-GAAP EPS guidance range. Its 2025 guidance now anticipates non-GAAP EPS of $1.78-$1.90, compared to $1.70-$1.90 previously.
The company has filed its response to the U.S. Justice Dept.’s complaint seeking to enjoin its proposed merger with Juniper Networks (JNPR). A trial date is set for July 9. Management intends to vigorously defend the litigation. Management believes that the judge will not rule immediately on the matter, so a decision may not be forthcoming until August (or perhaps even September). If HPE loses its challenge, it could conceivably appeal; but if the merger is ultimately scrapped, it will owe an $815 million termination fee to Juniper.
Based upon HPE’s 25Q2 results and management’s updated guidance, I have reduced my fiscal 2025 GAAP estimate from $1.18 to $0.32, but raised my non-GAAP EPS estimate from $1.80 to $1.92. My GAAP EPS estimate is in line with management’s revised GAAP EPS guidance range of $0.30-$0.42. My non-GAAP estimate slightly exceeds the high end of guidance, but I believe that this is consistent with the cadence that I see in the company’s quarterly performance. My fiscal 2026 GAAP and non-GAAP EPS forecasts are unchanged.
Since my last report (April 17), HPE’s stock has risen 16.4% outpacing the S&P 500’s 13.1% gain. With that advance, the stock now offers a potential 16.3% return to my price target of $20.00, including its 2.9% dividend yield. Accordingly, I am lowering my performance rating on HPE’s stock from “1” (Buy) to “2” (Outperform). If the company prevails in its challenge to the Justice Dept.’s lawsuit to block its merger with Juniper, there is probably upside beyond my $20 price target, perhaps to HPE’s January intraday high of $24.46; but a loss would still be a disappointment.
This is a summary of Lark Research’s recent report on Hewlett Packard Enterprise Company (HPE). To obtain a copy of the report, please reach out to Steve Percoco using the contact information provided below.
June 20, 2025 (Report published on June 15, 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.
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