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It has been about a month since the last earnings report for Hewlett Packard Enterprise (HPE). Shares have added about 13.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HP Enterprise due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hewlett Packard Q4 Earnings Top Estimates, Revenues Lag
Hewlett Packard Enterprise Company delivered fourth-quarter fiscal 2021 non-GAAP earnings of 52 cents per share, which surpassed the Zacks Consensus Estimate by 6.1% and met management’s upper-end guidance of 44-52 cents. The reported figure also came in higher than the year-ago number of 41 cents.
Revenues of $7.35 billion increased 2% from the prior-year quarter but missed the consensus mark by 0.6%. Further, the annualized revenue run-rate was up 33% year over year to $705 million.
Hewlett Packard Enterprise continued to witness strong demand for its products and services during the quarter, mainly driven by the accelerated digital transformation amid the COVID-led work-from-home wave. However, supply-chain constraints hurt its sales growth.
Segment-wise, Hewlett Packard registered sales growth across all its business segments.
Revenues from the Storage business were up 3.5% year over year to $1.26 billion. Nimble grew 4% from the prior-year quarter. Also, All Flash Array Storage gained 7% year over year, driven by the solid adoption of Primera All Flash.
High Performance Compute & Artificial Intelligence (HPC & AI) revenues increased 1% year over year to $1 billion. The company witnessed some large contracts pushed out into fiscal 2022.
Revenues in the Intelligent Edge division rose 3.4% year over year to $815 million during the quarter, mainly driven by strong customer demand. However, continued component-supply constraints hurt the division’s sales growth.
Financial Service revenues were up 1% year over year to $858 million.
The Compute division’s sales increased 1% year on year to $3.23 billion.
Non-GAAP gross margin of 33% expanded 230 basis points (bps) on a year-over-year basis and contracted 170 bps sequentially. The year-over-year improvement in gross margin was mainly driven by a strong pricing discipline, benefits from a positive mix shift toward high-margin software-rich businesses, cost takeouts and automation.
Hewlett Packard’s non-GAAP operating profit margin increased 120 bps year over year to 9.7%. Savings from the cost optimization plan and improved productivity led to a year-over-year improvement in operating margin.
Balance Sheet and Cash Flow
Hewlett Packard ended the fiscal fourth quarter with $4 billion in cash and cash equivalents compared with $5.29 billion recorded at the end of the previous quarter.
During the reported period, Hewlett Packard generated operating and free cash flows of $2.96 billion and $94 million, respectively. During fiscal 2021, HPE generated operating and free cash flows of $5.87 billion and $1.55 billion, respectively.
In the fourth quarter, Hewlett Packard bought back shares worth $213 million and paid $157 million in dividends. During fiscal 2021, it returned $625 million in dividends to shareholders and $213 million through share repurchases.
The company declared that a regular cash dividend of $0.12 per share will be paid out on Jan 7, 2022.
First-Quarter and Fiscal 2022 Guidance
Hewlett Packard forecasts fiscal 2022 non-GAAP earnings in the range of $1.96-$2.10 per share. It anticipates free cash flow in the band of $1.8-$2 billion.
For the first quarter of fiscal 2022, Hewlett Packard expects non-GAAP earnings between 42 cents and 50 cents per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.49% due to these changes.
At this time, HP Enterprise has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HP Enterprise has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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