On Wednesday, Barclays upgraded HP (NYSE:HPQ) Enterprise (NYSE:HPE) stock from Equalweight to Overweight, increasing the price target to $24 from $20.
The firm's analyst cited several reasons for the positive outlook on the company's stock, including an anticipated recovery in the enterprise server market, benefits from the company's focus on artificial intelligence (AI) servers, improvements in the storage business, and potential gains in the networking segment.
The analyst noted that a detailed server model update led to the recognition of signs indicating a rebound in the enterprise server sector, prompting an upward revision of estimates for HPE in this area.
Additionally, the company's AI server revenues were slightly raised last quarter, with HPE expected to maintain a marginally higher gross margin on AI servers compared to its competitors.
In the storage domain, HP Enterprise's shift towards products based on its own intellectual property is expected to continue driving improvements. This strategic move is seen as a positive development for the company's storage business.
The networking industry has faced challenges, but the analyst believes that the market has reached its lowest point. With the anticipated realization of cost synergies and the integration of HPE's assets, including Aruba, the analyst expects HP Enterprise to achieve a 13% accretion and gain market share.
The upgrade and new price target reflect Barclays' confidence in HP Enterprise's strategic initiatives and market position, suggesting a favorable outlook for the company's financial performance.
In other recent news, Hewlett Packard Enterprise (NYSE:HPE) has expanded its Aruba Networking Central platform, introducing new artificial intelligence (AI) insights and functionalities. The enhancement includes third-party network device monitoring for vendors such as Cisco (NASDAQ:CSCO), Juniper Networks (NYSE:JNPR), and Palo Alto Networks (NASDAQ:PANW).
HPE's recent acquisition of Juniper Networks is anticipated to significantly reshape the company's revenue composition. Analyst firms such as Citi and BofA Securities have expressed expectations of considerable growth in the network segment's contribution to the adjusted operating income.
HPE's third-quarter fiscal year 2024 revenue saw a 10% year-over-year increase, reaching $7.7 billion, with AI system revenues marking 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.
BofA Securities has upgraded HPE to a Buy rating, expecting the new CFO, Marie Myers, to drive substantial cost reductions and foreseeing revenue and cost synergies following the Juniper acquisition.
Evercore ISI maintains an In-Line rating, adjusting its forecast for the accretive value of Juniper to HPE, now anticipating a ~7% earnings boost in fiscal year 2025.
Loop Capital Markets, while maintaining a neutral rating, recognizes HPE's strong quarter-over-quarter momentum in Gen AI server sales and the potential for the Juniper Networks acquisition to address margin concerns. These are the recent developments in HPE's operations and market performance.
InvestingPro Insights
Barclays' upgrade of HP Enterprise (NYSE:HPE) to Overweight with a raised price target aligns with several key metrics and insights from InvestingPro. The company currently boasts a market capitalization of approximately $24.49 billion, which underscores its significant presence in the technology sector. Notably, HP Enterprise trades at an attractive P/E ratio of 13.29, indicating that it may be undervalued relative to its near-term earnings growth potential. This is further supported by the adjusted P/E ratio for the last twelve months as of Q3 2024, which stands at 11.98.
The company's focus on profitability is evident, with analysts predicting that HP Enterprise will remain profitable this year, a prediction that is backed by its performance over the last twelve months. Moreover, HP Enterprise has a strong track record of returning value to shareholders, as highlighted by its high shareholder yield and a consistent history of dividend payments for 10 consecutive years. The dividend yield as of the most recent data stands at 2.75%, coupled with a dividend growth of 8.33% over the last twelve months as of Q3 2024. This commitment to shareholder returns is a positive signal for investors.
InvestingPro Tips also highlight HP Enterprise's valuation, which implies a robust free cash flow yield, and its status as a prominent player in the Technology Hardware, Storage & Peripherals industry. For investors seeking additional insights, there are more InvestingPro Tips available at https://www.investing.com/pro/HPE, which could further inform investment decisions in the context of the company's strategic initiatives and market positioning.
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