HP Enterprise Pops 6% After Quarterly Profit Tops Estimates

Shares in Hewlett Packard Enterprise jumped 6% in the extended market session after posting better-than-expected earnings fueled by increased demand for secure work-from-home cloud solutions and connected devices.

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The stock rose to $9.90 in after-market trading. HP Enterprise’s (HPE) revenues dropped almost 6% to $6.8 billion in the third fiscal quarter ended July 31 surpassing analysts’ expectations for $6.06 billion. Non-GAAP earnings of 32 cents a share in the reported quarter declined from 45 cents a share in the year-ago quarter. Analysts had estimated adjusted earnings of 23 cents a share.

“We significantly improved operational and supply chain execution and advanced our innovation agenda with the introduction of HPE GreenLake cloud services solutions, our new HPE Ezmeral software portfolio, and our planned acquisition of SD-WAN leader Silver Peak,” said Antonio Neri, CEO of HPE. “Navigating through the pandemic and planning for a post-COVID world have increased customers’ needs for as-a-service offerings, secure connectivity, remote work capabilities and analytics to unlock insights from data that are aligned to our strategy. We see a tremendous opportunity to help our customers drive digital transformations as they continue to adapt to operate in a new world.”

Neri added that HPE reduced its backlog by more than $500 million from the Q2 historical high exit levels. He expects the company to return to normalized level of backlog by the end of Q4 .

HPE’s Board of Directors declared a regular cash dividend of $0.12 per share on the company’s common stock. This dividend, the fourth in the company’s fiscal year 2020, is payable on October 7, to stockholders of record as of the close of business on September 9.

Looking ahead, HPE expects fiscal fourth quarter non-GAAP earnings of 32 to 36 cents a share, compared with the Street consensus of 31 cents a share. For the full fiscal year, non-GAAP earnings are forecast to be in the range of $1.30 to $1.34 a share, versus the $1.20 a share estimated by analysts. (See HPE stock analysis on TipRanks)

Susquehanna analyst Mehdi Hosseini last month reiterated a Hold rating on the stock with a $10 price target, following HPE’s acquisition of Silver Peak for $925M.

“The move confirms our thesis that cloud and telecom network infrastructure will continue to converge, with Edge Compute being the first enterprise-level use case of a unified architecture,” Hosseini wrote in a note to investors. “We remain on the sidelines until we have increased visibility onto FY22-and-beyond earnings/FCFs and […] evaluate the relative strength of competitors offerings.”

With HPE shares down 41%, the rest of the Street currently has a cautious outlook on the stock. The Hold analyst consensus breaks down into 6 Holds, 1 Sell and 1 Buy. The $10.50 average analyst price target implies 13% upside potential in the shares over the coming year.