Investing.com -- Barclays downgraded HP Enterprise (NYSE: HPE) to Equal Weight from Overweight on Wednesday, cutting its price target to $77 from $83 as a roughly 186% year-to-date rally has left less room for further upside.

Analyst Tim Long made no changes to his financial forecasts, framing the downgrade as a valuation call rather than a reassessment of the company’s fundamentals.

“While we like the networking exposure, we see the improved mix as reflected in the current valuation,” Long wrote. Barclays now values HPE at 13 times its fiscal 2028 earnings estimate, down from 14 times previously, when the bank’s $83 target was based on projected earnings per share of $5.92.

HPE shares fell 4.1% to $65.99 on Wednesday morning, compared with the previous close of $68.81. Despite the lower target, Barclays’ $77 valuation remains above the current share price, suggesting the bank sees some upside but no longer considers the stock’s risk-reward profile compelling enough to warrant an Overweight rating.

The rally has been driven largely by HPE’s growing networking business following its acquisition of Juniper Networks, which has significantly reshaped the company’s revenue mix.

Long said initial concerns about the integration have eased as management raised its expectations for the business. HPE now expects networking revenue to grow at a compound annual rate in the high teens over fiscal 2026-2029, according to Barclays.

Networking accounts for roughly half of HPE’s operating profit, making it a key driver of the stock’s outperformance. Long also highlighted the division’s broad-based strength and improving artificial intelligence outlook, noting that HPE and Juniper are well positioned in campus networking and emerging AI infrastructure markets, including scale-up and scale-across systems.

However, Barclays believes those advantages are now largely reflected in the share price, limiting the scope for further multiple expansion.

The bank also flagged potential pressure on HPE’s server and storage business as memory prices normalize. Like other industry participants, HPE has benefited from higher average selling prices that supported revenue while helping maintain gross margins.

“We see less upside as memory prices normalize,” Long wrote, suggesting that the fading tailwind could weigh on the segment’s growth and profitability.

With networking strength already reflected in the valuation and a potential headwind emerging in servers and storage, Barclays sees a less attractive risk-reward balance after HPE’s substantial rally.

Original Article