Evercore ISI has maintained its In-Line rating and a $22.00 price target on HP (NYSE:HPQ) Enterprise (NYSE: HPE), following an update on the expected financial impact from the upcoming acquisition of Juniper Networks (NYSE:JNPR).
The firm adjusted its forecast for the accretive value of Juniper to HP Enterprise, now anticipating a ~7% earnings boost in fiscal year 2025, down from the previously estimated ~13%.
This revision is attributed to broader industry headwinds expected in 2024 and higher financing costs due to lower-than-expected proceeds from the divestiture of H3C.
The anticipated earnings per share (EPS) increase for HP Enterprise from the Juniper acquisition has been revised to approximately 15 cents, offset somewhat by the issuance of convertible securities.
While the deal is expected to result in a modest decrease in cash flow due to the 8% dividend on these converts, long-term accretion could reach around 40 cents or 17%, mainly driven by operational expense synergies.
HP Enterprise has raised its operational expense synergy target to a minimum of $450 million, which is expected to significantly contribute to EPS growth in the first year post-acquisition.
The integration of Juniper's enterprise assets, particularly Mist, is considered strategically beneficial, with potential for the Juniper portfolio to achieve margins comparable to HP Enterprise's Intelligent Edge segment.
However, the firm notes that there are still uncertainties regarding the integration process, potential portfolio consolidation between Aruba and Mist, and the future of Juniper's service provider business.
In other recent news, HP Enterprise (HPE) reported a 10% year-over-year increase in third-quarter fiscal year 2024 revenue, reaching $7.7 billion. AI system revenues marked a 40% increase from the previous quarter, totaling $1.3 billion.
However, the Hybrid Cloud and Intelligent Edge segments saw year-over-year revenue declines of 7% and 23% respectively. HPE has also provided new financial details related to its merger with Juniper Networks, as indicated in a recent SEC Form 8-K filing.
BofA Securities has upgraded HPE stock to a Buy rating, citing significant cost reductions and a cyclical recovery in various sectors. Loop Capital Markets recently adjusted the price target for HPE shares, while maintaining a neutral rating.
InvestingPro Insights
HP Enterprise (NYSE:HPE) has been a topic of discussion among analysts, particularly in light of its upcoming acquisition of Juniper Networks. In the wake of recent evaluations, InvestingPro data suggests a nuanced picture of the company's financial status. With a market capitalization of $23.64 billion and a P/E ratio standing at 12.74, HPE shows signs of trading at a low P/E ratio relative to near-term earnings growth. Additionally, the company's revenue for the last twelve months as of Q3 2024 reached $29.02 billion, despite a slight decline in revenue growth by -2.14%. However, the company's strong free cash flow yield, as implied by its valuation, is noteworthy.
InvestingPro Tips highlight that HPE has a high shareholder yield and has been able to maintain dividend payments for 10 consecutive years, with the dividend yield currently at 2.86%. This could be attractive to investors seeking steady income streams. Also, despite six analysts revising their earnings downwards for the upcoming period, the company is still predicted to be profitable this year, as it has been over the last twelve months. For those interested in further insights, there are additional tips available on InvestingPro, which can shed more light on HPE's financial health and future prospects.
As the company embarks on integrating Juniper Networks, these financial metrics and insights from InvestingPro could provide investors with a clearer understanding of HP Enterprise's current position and future potential. With the acquisition poised to reshape the company's long-term strategy, keeping an eye on these data points could be crucial for stakeholders and potential investors.
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