UPDATE: HP Enterprise (HPE) Seen as Inexpensive; Bernstein Upgrades to 'Outperform'
Bernstein upgraded HP Enterprise (NYSE: HPE) from Market Perform to Outperform with a price target of $19. Analyst Toni Sacconaghi noted that Q1 results were solid, especially revenue, and he sees shares as "too inexpensive."
"Since we initiated coverage of HPE last year, we have believed that the stock offered very attractive upside potential, but we were fearful that revenue – and particularly EPS - estimates were too high and needed to be reset prior to the stock being poised to outperform. With HPE delivering a third straight quarter of positive revenue growth at constant currency last night, and the company effectively stating that it would likely reduce its share count by more than 10%over the 1.5 years, we believe that FY 16 EPS guidance is achievable, and more importantly, that EPS should be able to grow YoY in FY 16 and FY 17," said Sacconaghi.
The analyst continued, "Moreover, while cash flow was absolutely abysmal in Q1, it has nowhere to go but up, and we believe the stock is likely to re-rate as cash flow improves, consistent with what happened with HPQ during 2012 to 2014, when the stock more than tripled off its low over the period of 24 months "
Sacconaghi added, "While we are always loathe to change our rating on a stock following any news event such as earnings, we believe that the stock's valuation – trading at about 6x earnings ex-net cash (implying about a 5% to 6% decline in normalized FCF per year going forward), is simply too inexpensive – we note that IBM, HPE's most relevant peer, trades at ~11x EPS ex-net debt."
For an analyst ratings summary and ratings history on HP Enterprise click here. For more ratings news on HP Enterprise click here.
Shares of HP Enterprise closed at $13.60 yesterday.