Hewlett Packard Enterprise Co (NYSE: HPE) received renewed attention today as Citi resumed coverage on the stock with a Neutral rating and a $20 price target.
The investment bank highlighted that HPE’s planned acquisition of Juniper Networks (NYSE: JNPR) remains on schedule to close later this year or early next year.
Citi analyst Asiya Merchant noted that HPE is shifting towards a higher-growth, higher-margin portfolio focused on enterprise network offerings.
With the Juniper acquisition, the network segment is expected to contribute over 50% of adjusted operating income, up from 30% currently.
However, Merchant cautioned that synergies from the deal may take time to materialize due to potential challenges in creating a unified offering, given overlaps in WLAN, campus, and branch switching.
Meanwhile, Citi analyst Atif Malik expressed confidence in the $14 billion merger, stating there’s a “high probability” it will be completed in the coming months despite some investor concerns.
Malik added that while Juniper’s enterprise AI focus and opportunities for gross margin expansion are attractive, these positives are somewhat overshadowed by the pending acquisition.
BofA upgrades HPE stock
Other analysts have also weighed in on HPE recently.
Bank of America upgraded the stock to a Buy rating from Neutral on September 17, raising the price target to $24.
The firm cited several catalysts, including significant cost reductions under new CFO Marie Myers, anticipated synergies from the Juniper acquisition, and potential margin upside from High-Performance Computing (HPC) as AI demand increases.
HPE’s Q3 earnings
HPE’s fundamental performance has shown strength, particularly in the third quarter.
The company reported revenue of $7.71 billion, up 10.1% year-over-year, beating analyst estimates by $40 million.
Non-GAAP earnings per share came in at $0.50, surpassing expectations by $0.03. Operating margins improved by 70 basis points year-over-year, driven by an additional $1 billion in revenue from the AI segment.
CEO Antonio Neri highlighted that the company is capitalizing on three unique AI market segments: service providers, sovereign cloud, and enterprise.
HPE’s AI-in-the-box solution, co-engineered with NVIDIA, offers a fully integrated infrastructure-to-application platform, catering to enterprise customers who need to develop AI applications quickly without assembling disparate software and hardware components.
The pending $14 billion acquisition of Juniper Networks is expected to strengthen HPE’s position in the enterprise networking and AI infrastructure markets.
While the deal will impact the company’s cash position and may lead to increased debt, analysts believe the long-term benefits, including higher-margin revenue streams and expanded market share, will outweigh the near-term financial adjustments.
HPE stock valuation
In terms of valuation, HPE trades at a forward P/E ratio of approximately 10 based on projected earnings per share of $1.92 for fiscal year 2024.
This is significantly lower than the industry average, suggesting that the stock may be undervalued relative to its peers.
The company’s price-to-book ratio stands at around 1.11, also below the industry average, indicating potential value for investors.
With strong fundamentals, positive analyst sentiment, and strategic acquisitions on the horizon, HPE presents an interesting case for investors.
However, stock performance ultimately reflects not just fundamentals but also market sentiment and technical factors. So, let’s examine what the charts reveal about HPE’s price trajectory.
Need to surpass $20.10 for bullish momentum to return
HPE’s stock traded within a narrow $14-$18 range from 2021 to 2023. Earlier this year, it broke out of this range, reaching a 5-year high near $23, but has since pulled back significantly.
Source: TradingView
The stock could have maintained a bullish outlook on long-term charts if it hadn’t dipped below its May 2024 swing low of $16.26 earlier this month.
While it has recovered to around $18.80, a daily close above the recent swing high of $20.10 is necessary to reignite bullish momentum. Investors looking to go long should wait for this level to be surpassed.
For those with a bearish view, shorting around $19 with a stop loss at $20.20 might be a strategy to consider.
If the stock weakens again, it could drop to the $16 level, where profits can be taken.
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