On Wednesday, UBS analyst David Vogt adjusted the price target for HP (NYSE:HPQ) Enterprise (NYSE:HPE) to $17.00, up from the previous $16.00, while the Neutral rating on the company's shares was maintained. The revision followed HP Enterprise's post-earnings shares trading, which saw a 15% increase in after-hours trading.
HP Enterprise reported orders amounting to $600 million in the quarter, with a quarter-over-quarter backlog decrease of $300 million, or 9%. This performance was contrasted with Dell (NYSE:DELL)'s AI order, revenue, and backlog data from the previous week, which showed approximately $1.7 billion in AI server revenue and a backlog increase of $900 million, culminating in a $3.8 billion backlog at the end of their quarter.
Despite the less favorable comparison to Dell, HP Enterprise highlighted its collaboration with Microsoft/OpenAI to supply additional infrastructure capacity and services related to AI. This partnership could be seen as a positive development amidst the otherwise mixed results in the AI sector.
The updated full-year guidance from HP Enterprise includes unexpected elements. A gain of 1 to 2 cents in Q2 from an asset sale and the inclusion of 3 cents of income from retaining a 19% stake in H3C, which was not accounted for in prior estimates, were both contributing factors to the revised forecast. When these factors are normalized, the adjusted full-year 2024 guidance would be around $1.80 to $1.90, closely aligning with previous estimates of $1.83 and consensus estimates of $1.87.
Moreover, the company raised its full-year 2024 revenue guidance to a growth range of 1-3%, up from 0-2%. This increase is primarily driven by the Server sector rather than the higher-margin Infrastructure Edge (IE) and Storage segments. Consequently, this shift is expected to result in gross margin pressures, which are anticipated to be offset by reduced operating expenses, thereby keeping operating margins for FY24 consistent with those of FY23.
In other recent news, HP Enterprise has been making significant strides in the artificial intelligence (AI) systems market. The company's revenue from AI systems more than doubled in the second fiscal quarter of 2024, reaching approximately $900 million. These strong results led to raised full-year revenue and earnings guidance, with a projected revenue between $7.4 billion and $7.8 billion for the third quarter.
Evercore ISI reaffirmed its In Line rating for HP Enterprise, maintaining a $22.00 price target on the stock. This decision follows HP Enterprise's release of its April-quarter earnings, which surpassed expectations. Despite these positive trends, Evercore ISI has chosen to maintain its In Line rating and $22 price target for HP Enterprise.
On a related note, both Susquehanna and Wells Fargo have raised their price targets for HP Enterprise's shares to $20 and $22 respectively, reflecting their confidence in the company's performance. Despite these developments, Susquehanna's analysis suggests potential challenges for HP Enterprise in the AI supply chain, which might allow competitors such as NTAP and Dell to consolidate their positions.
InvestingPro Insights
Following UBS analyst David Vogt's adjustment of HP Enterprise's price target, current InvestingPro data shows a market capitalization of $25.57 billion and a Price/Earnings (P/E) ratio of 14.14. Notably, the P/E ratio adjusted for the last twelve months as of Q1 2024 stands at a lower 10.32, indicating potential value when compared to the industry average. With a Gross Profit Margin of 35.75% for the same period, HPE demonstrates strong profitability in its operations.
InvestingPro Tips suggest that HPE's valuation implies a strong free cash flow yield and the stock generally trades with low price volatility, which may appeal to investors seeking stability. Additionally, HPE is recognized as a prominent player in the Technology Hardware, Storage & Peripherals industry. For those interested in dividend consistency, HPE has maintained dividend payments for 10 consecutive years. Moreover, analysts predict the company will be profitable this year, which is supported by a positive EBITDA growth of 1.28% over the last twelve months.
For readers looking to delve deeper into HPE's financial metrics and gain additional InvestingPro Tips, a visit to https://www.investing.com/pro/HPE is recommended. There, you will find a comprehensive analysis, including 6 additional tips to inform your investment decisions. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with valuable insights.
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