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Bank Of America Turns Bullish On HPE, Says Several Business Trends Are Improving

Priya Nigam

Hewlett Packard Enterprise Co (NYSE: HPE) is scheduled to hosts its 2019 Securities Analyst Meeting in New York on Wednesday and provide guidance for fiscal 2019 and 2020.

The company seems poised to generate revenue growth, gross margin expansion and double-digit EPS and free cash flow growth in the long term, according to Bank of America.

The Analyst

BofA’s Wamsi Mohan upgraded Hewlett-Packard Enterprise from Underperform to Buy while raising the price target from $13 to $19.

The Thesis

Hewlett-Packard Enterprise could generate earnings higher than its initially conservative guidance, Mohan said in the note.

He expects the company to generate free cash flow of $2.0 billion and EPS of $1.90 in fiscal 2020, which could be at the high-end of management’s upcoming guidance.

Referring to the reasons for the rating upgrade, the analyst cited several structural improvements in underlying business trends.

First, Hewlett-Packard Enterprise’s free cash flow is improving with fewer onetime items.

Second, Mohan cited management’s focus on stable growth and stability of earnings. He added that the company continued to provide strong capital returns of 50% to 75% of annual free cash flows.

Third, there were now less revenue from lower-margin Tier-1 server sales. As the fifth reason, the analyst mentioned the company’s robust growth in Intelligent Edge/Aruba product and services offerings.

He mentioned that the stock was trading at a low multiple and the move to as-a-service offering could drive value over time. As the final reason, Mohan mentioned the improving mix at PointNext, which should drive higher profitability over time.

Price Action

Shares of Hewlett-Packard Enterprise closed Monday up 4.04% at $15.97.

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Latest Ratings for HPE

Date Firm Action From To
Oct 2019 Upgrades Underperform Buy
Oct 2019 Upgrades Underperform In-Line
Aug 2019 Maintains Outperform

View More Analyst Ratings for HPE
View the Latest Analyst Ratings

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