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Hewlett Packard (HPE) Up 11.6% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Hewlett Packard Enterprise Company (HPE - Free Report) . Shares have added about 11.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is HPE 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 drivers.
Hewlett Packard Tops Q1 Earnings Estimates, Guides Well
Hewlett Packard reported better-than-expected first-quarter fiscal 2018 results. The company’s non-GAAP net earnings from continuing operations of 34 cents per share beat the Zacks Consensus Estimate of 23 cents and also came toward the higher end of management’s guidance range of 20-24 cents. However, on a year-over-year basis, the figure declined 24.4%.
On a GAAP basis, the company reported earnings of 89 cents from continuing operations compared with 16 cents reported in the year-ago quarter. Moreover, it compared favorably with the guided range of 1-5 cents. The better-than-expected bottom-line performance primarily stemmed from increased revenues, cost savings and lower tax rate.
Revenues
Hewlett Packard Enterprise reported revenues from continuing operations (which includes Enterprise Group and Financial Services) of $7.674 billion, up 11.2% from the year-earlier quarter’s revenues of $6.902 billion. Further, quarterly revenues outpaced the Zacks Consensus Estimate of $7.025 billion.
Adjusted for currency-exchange rates and divestures, the company’s revenues from continuing operations were up 9% year over year.
During the reported quarter, Hewlett Packard Enterprise’s performance in the Americas grew 3% mainly due to “strength in core compute and campus switching combined with a recovery in the organic storage results.” Revenues in Europe went up 11% in constant currency mainly due to strength in core compute and storage, and higher growth in Germany and Scandinavia. The Asia Pacific witnessed strong core server sales, with growth in Japan, Australia and China.
Segment wise, revenues at the Hybrid IT increased 10% year over year to $6.331 billion. Adjusting for currency, segment revenues were up 9% year over year. Revenues from the Intelligent Edge and Financial Services segments climbed 8.8% and 7.9%, respectively.
Operating Results
Hewlett Packard Enterprise’s gross margin contracted 370 basis points (bps) on a year-over-year basis to 28.4%. This contraction resulted from competitive pricing, elevated DRAM pricing and unfavorable currency.
In addition, the company’s non-GAAP operating margin shrunk 180 bps to 7.7%, primarily due to a lower gross margin, which was partially offset by a decline in non-GAAP operating expenses as a percentage of revenues resulting.
Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the fiscal first quarter with $7.7 billion in cash and cash equivalents, up from $9.6 billion recorded at the end of the previous quarter. Long-term debt at the quarter end was $10.040 billion compared with $10.182 billion recorded in the last quarter.
During the quarter, Hewlett Packard Enterprise generated $142 million of cash flow from operational activities. However, free cash flow was negative $412 million. Additionally, during the reported quarter, the company returned $862 million to shareholders, of which $742 million was through share repurchases and the remaining through dividend payments.
Guidance
The company issued an encouraging bottom-line guidance for second-quarter and raised its outlook for fiscal 2018.
Hewlett Packard Enterprise now expects non-GAAP earnings per share for fiscal 2018 in the range of $1.35-$1.45 (mid-point $1.40), up from the previous range of $1.15-$1.25 (mid-point $1.20). On a GAAP basis too, the company now projects the bottom line to be in the band of $1.35-$1.45, up from the prior range of 43-53 cents.
Furthermore, the company during its conference call stated that it intends to return $7 billion to the shareholders through share buyback and dividend payments by the end of fiscal 2019.
The company did not provide any update on other guidance. During the fourth-quarter fiscal 2017 conference call, Hewlett Packard Enterprise had stated that it expects generating free cash flow of $1 billion in fiscal 2018. The company also anticipates returning $2.5 billion to shareholders in the fiscal, of which $2 billion was through share repurchases and the remaining through dividend payments.
For second-quarter fiscal 2018, Hewlett Packard Enterprise projects non-GAAP earnings per share in the range of 29-33 cents (mid-point: 31 cents). On a GAAP basis, the company guides the bottom line to be in the range of 10-14 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.
Hewlett Packard Enterprise Company Price and Consensus
At this time, HPE has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, HPE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Hewlett Packard (HPE) Up 11.6% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Hewlett Packard Enterprise Company (HPE - Free Report) . Shares have added about 11.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is HPE 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 drivers.
Hewlett Packard Tops Q1 Earnings Estimates, Guides Well
Hewlett Packard reported better-than-expected first-quarter fiscal 2018 results. The company’s non-GAAP net earnings from continuing operations of 34 cents per share beat the Zacks Consensus Estimate of 23 cents and also came toward the higher end of management’s guidance range of 20-24 cents. However, on a year-over-year basis, the figure declined 24.4%.
On a GAAP basis, the company reported earnings of 89 cents from continuing operations compared with 16 cents reported in the year-ago quarter. Moreover, it compared favorably with the guided range of 1-5 cents. The better-than-expected bottom-line performance primarily stemmed from increased revenues, cost savings and lower tax rate.
Revenues
Hewlett Packard Enterprise reported revenues from continuing operations (which includes Enterprise Group and Financial Services) of $7.674 billion, up 11.2% from the year-earlier quarter’s revenues of $6.902 billion. Further, quarterly revenues outpaced the Zacks Consensus Estimate of $7.025 billion.
Adjusted for currency-exchange rates and divestures, the company’s revenues from continuing operations were up 9% year over year.
During the reported quarter, Hewlett Packard Enterprise’s performance in the Americas grew 3% mainly due to “strength in core compute and campus switching combined with a recovery in the organic storage results.” Revenues in Europe went up 11% in constant currency mainly due to strength in core compute and storage, and higher growth in Germany and Scandinavia. The Asia Pacific witnessed strong core server sales, with growth in Japan, Australia and China.
Segment wise, revenues at the Hybrid IT increased 10% year over year to $6.331 billion. Adjusting for currency, segment revenues were up 9% year over year. Revenues from the Intelligent Edge and Financial Services segments climbed 8.8% and 7.9%, respectively.
Operating Results
Hewlett Packard Enterprise’s gross margin contracted 370 basis points (bps) on a year-over-year basis to 28.4%. This contraction resulted from competitive pricing, elevated DRAM pricing and unfavorable currency.
In addition, the company’s non-GAAP operating margin shrunk 180 bps to 7.7%, primarily due to a lower gross margin, which was partially offset by a decline in non-GAAP operating expenses as a percentage of revenues resulting.
Balance Sheet and Cash Flow
Hewlett Packard Enterprise ended the fiscal first quarter with $7.7 billion in cash and cash equivalents, up from $9.6 billion recorded at the end of the previous quarter. Long-term debt at the quarter end was $10.040 billion compared with $10.182 billion recorded in the last quarter.
During the quarter, Hewlett Packard Enterprise generated $142 million of cash flow from operational activities. However, free cash flow was negative $412 million. Additionally, during the reported quarter, the company returned $862 million to shareholders, of which $742 million was through share repurchases and the remaining through dividend payments.
Guidance
The company issued an encouraging bottom-line guidance for second-quarter and raised its outlook for fiscal 2018.
Hewlett Packard Enterprise now expects non-GAAP earnings per share for fiscal 2018 in the range of $1.35-$1.45 (mid-point $1.40), up from the previous range of $1.15-$1.25 (mid-point $1.20). On a GAAP basis too, the company now projects the bottom line to be in the band of $1.35-$1.45, up from the prior range of 43-53 cents.
Furthermore, the company during its conference call stated that it intends to return $7 billion to the shareholders through share buyback and dividend payments by the end of fiscal 2019.
The company did not provide any update on other guidance. During the fourth-quarter fiscal 2017 conference call, Hewlett Packard Enterprise had stated that it expects generating free cash flow of $1 billion in fiscal 2018. The company also anticipates returning $2.5 billion to shareholders in the fiscal, of which $2 billion was through share repurchases and the remaining through dividend payments.
For second-quarter fiscal 2018, Hewlett Packard Enterprise projects non-GAAP earnings per share in the range of 29-33 cents (mid-point: 31 cents). On a GAAP basis, the company guides the bottom line to be in the range of 10-14 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.
Hewlett Packard Enterprise Company Price and Consensus
Hewlett Packard Enterprise Company Price and Consensus | Hewlett Packard Enterprise Company Quote
VGM Scores
At this time, HPE has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, HPE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.