Shares of Hewlett Packard Enterprise HPE jumped over 3% during regular trading Tuesday to help extend its recent streak of positivity. The firm also announced its planned acquisition of supercomputer maker Cray Inc. CRAY last Friday. Now, with HPE set to report its quarterly financial results on Thursday, let’s see if investors should consider buying HP Enterprise stock.
Recent News & Overview
Hewlett Packard Enterprise last week said that it agreed to purchase supercomputing leader Cray, in a deal valued at roughly $1.3 billion. The firm will pay Cray investors $35 a share in cash, which represented a 17% premium to last Thursday’s closing price. HPE’s deal is projected to help the firm compete on a bigger scale in the data-driven age and improve its position against rivals like International Business Machines IBM.
Company management said that the deal will help create a more “comprehensive end-to-end portfolio across compute, storage, interconnect, software and services” in the quickly expand artificial intelligence and high-performance computing spaces. The deal is projected to be HP Enterprise largest since it started trading in 2015.
Hewlett-Packard split into HPE and HP Inc. HPQ in 2015. Today, HPE sells enterprise-level servers, storage, and networking gear, and has lost ground to the likes of Cisco CSCO and Dell. Plus, the cloud-computing age has seen Amazon AMZN and Microsoft MSFT eat away at its business.
Overall, shares of HPE have climbed roughly 16% in 2019, which falls below its industry’s 18% average climb. HPE closed regular trading at $15.25 per share Tuesday, down roughly 14% from its 52-week intraday trading high of $17.68.
Outlook & Earnings Trends
Before we dive into what to expect from HP Enterprise’s second-quarter fiscal 2019 financial results, let’s quickly look at how the tech sector has performed so far this quarter. As of last week, roughly 80% of the S&P 500’s tech companies had reported their Q1 results, with overall earnings down -6.6% on +3.8% higher revenues. Meanwhile, 81.1% had beat EPS estimates and 69.8% had topped revenue estimates. Investors should note that rough quarters from giants such as Apple AAPL helped drag tech down (also read: Can Q1 Earnings Reports Help Retail Stocks?).
Moving, Palo Alto-based HP Enterprise is projected to see its quarterly revenue slip 0.33% to $7.44 billion. Last quarter, the firm’s revenue dipped 1.6% and fell short of our Zacks Consensus Estimate. At the bottom end of the income statement, HPE’s adjusted quarterly earnings are projected to pop 5.9% to reach $0.36 per share. The firm’s adjusted EPS figure soared over 31% last quarter and topped our estimate.
It is worth noting that the company has seen zero earnings estimate revisions over the last 60 days, which means analysts’ outlooks have remained unchanged. With that said, HP Enterprise has topped quarterly earnings estimates in the trailing four periods by an average of 13.4%.
HP Enterprise is currently a Zacks Rank #3 (Hold) based, somewhat, on its lack of earnings revisions. HPE also sports “B” grades for both Value and Growth in our Style scores system, with HPE’s price/sales ratio of 0.66 marking a discount compared to its industry’s 1.84 average. The firm is also a dividend payer with a yield of 3.05% at the moment.
With that said, buying stocks heading into earnings is never easy on the stomach, as it is hard to know how Wall Street will react in the near term, even to a “strong” report. Yet HP Enterprise has shown some signs of life recently and it seems set to expand based on its recently-announced acquisition.
HP Enterprise is set to release its Q2 fiscal 2019 financial results after the closing bell on Thursday, May 23. So make sure to head back to Zacks for a complete breakdown after the firm reports.
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