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HPE Stock Plunges 27% in a Month: Hold Tight or Time to Let Go?
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Hewlett Packard Enterprise (HPE - Free Report) stock has lost 27.3% in the past month, underperforming Zacks Computer and Technology sector and the S&P 500 index’s decline of 11.5% and 7.5%, respectively. HPE has also underperformed its industry peers, including Micron Technology (MU - Free Report) , Seagate Technology (STX - Free Report) and Advanced Micro Devices (AMD - Free Report) .
HPE’s sharp decline over the past month has sparked investor concerns, leading to the question: Should investors hold the stock or book losses?
One-Month Price Return Performance
Image Source: Zacks Investment Research
Reason Behind HPE Stock’s Decline
The recent decline in HPE stems from broader market weakness. Investor sentiment has soured amid escalating trade war concerns, with tariffs raising fears of increased costs. HPE’s manufacturing facilities are concentrated in a dozen of countries, among which China and Mexico contribute a significant part.
President Donald Trump has hiked the tariff rates to 25% on all imported goods from China and Mexico, and this has negative future implications for HPE’s products and components, including servers, storage devices, and networking equipment, that are manufactured or sourced from these regions.
Additionally, HPE’s fiscal first-quarter earnings missed due to unanticipated pricing pressure from aggressive discounting on traditional servers and normalization of post-pandemic backlog orders in its high-margin Intelligent Edge division amplified investor pessimism for the stock.
DOJ’s Obstruction to Merger Hurts HPE
Another factor that contributed to investor pessimism is the recent impediment posed by the U.S. Department of Justice (DOJ) in the acquisition of Juniper Networks. The Juniper acquisition was put in place to scale HPE’s networking business so the company could offer next-generation AI-native networking and enable new digital experiences with improved connectivity.
However, the U.S. DOJ filed a lawsuit against HPE with concerns that the HPE-Juniper merger would undermine the competitive fabric of the networking market by reducing the number of market players. As the acquisition continues to face delays due to the DOJ’s interference, the overall cost of the deal is likely to rise.
In its annual filing for fiscal 2024, HPE reported that the charges related to acquisitions and other activities increased $135 million, mainly due to costs from the pending acquisition of Juniper Networks. Rising acquisition costs will undermine HPE’s earnings performance. The Zacks Consensus Estimate for HPE’s fiscal 2025 earnings is pegged at $2.04 per share, indicating 2.6% growth year over year.
HPE beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, missing the same on one occasion, with an average surprise of 5.7%.
Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
50-Day & 200-Day SMA Suggest Bearish Trend
HPE shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
Image Source: Zacks Investment Research
Conclusion: Sell HPE Stock Now
HPE is facing tariff-related pressure, rising costs, narrowed margins and low revenue recognition in its high-margin businesses. Furthermore, the company is grappling with regulatory challenges posed by the DOJ, which is delaying Juniper integration and increasing the acquisition cost for HPE.
Keeping all these factors in mind, we suggest investors to stay away from this Zacks Rank #4 (Sell) stock at present.
Image: HPE Newsroom
HPE Stock Plunges 27% in a Month: Hold Tight or Time to Let Go?
Hewlett Packard Enterprise (HPE - Free Report) stock has lost 27.3% in the past month, underperforming Zacks Computer and Technology sector and the S&P 500 index’s decline of 11.5% and 7.5%, respectively. HPE has also underperformed its industry peers, including Micron Technology (MU - Free Report) , Seagate Technology (STX - Free Report) and Advanced Micro Devices (AMD - Free Report) .
HPE’s sharp decline over the past month has sparked investor concerns, leading to the question: Should investors hold the stock or book losses?
One-Month Price Return Performance
Image Source: Zacks Investment Research
Reason Behind HPE Stock’s Decline
The recent decline in HPE stems from broader market weakness. Investor sentiment has soured amid escalating trade war concerns, with tariffs raising fears of increased costs. HPE’s manufacturing facilities are concentrated in a dozen of countries, among which China and Mexico contribute a significant part.
President Donald Trump has hiked the tariff rates to 25% on all imported goods from China and Mexico, and this has negative future implications for HPE’s products and components, including servers, storage devices, and networking equipment, that are manufactured or sourced from these regions.
Additionally, HPE’s fiscal first-quarter earnings missed due to unanticipated pricing pressure from aggressive discounting on traditional servers and normalization of post-pandemic backlog orders in its high-margin Intelligent Edge division amplified investor pessimism for the stock.
DOJ’s Obstruction to Merger Hurts HPE
Another factor that contributed to investor pessimism is the recent impediment posed by the U.S. Department of Justice (DOJ) in the acquisition of Juniper Networks. The Juniper acquisition was put in place to scale HPE’s networking business so the company could offer next-generation AI-native networking and enable new digital experiences with improved connectivity.
However, the U.S. DOJ filed a lawsuit against HPE with concerns that the HPE-Juniper merger would undermine the competitive fabric of the networking market by reducing the number of market players. As the acquisition continues to face delays due to the DOJ’s interference, the overall cost of the deal is likely to rise.
In its annual filing for fiscal 2024, HPE reported that the charges related to acquisitions and other activities increased $135 million, mainly due to costs from the pending acquisition of Juniper Networks. Rising acquisition costs will undermine HPE’s earnings performance. The Zacks Consensus Estimate for HPE’s fiscal 2025 earnings is pegged at $2.04 per share, indicating 2.6% growth year over year.
HPE beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, missing the same on one occasion, with an average surprise of 5.7%.
Hewlett Packard Enterprise Company Price, Consensus and EPS Surprise
Hewlett Packard Enterprise Company price-consensus-eps-surprise-chart | Hewlett Packard Enterprise Company Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
50-Day & 200-Day SMA Suggest Bearish Trend
HPE shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
Image Source: Zacks Investment Research
Conclusion: Sell HPE Stock Now
HPE is facing tariff-related pressure, rising costs, narrowed margins and low revenue recognition in its high-margin businesses. Furthermore, the company is grappling with regulatory challenges posed by the DOJ, which is delaying Juniper integration and increasing the acquisition cost for HPE.
Keeping all these factors in mind, we suggest investors to stay away from this Zacks Rank #4 (Sell) stock at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.