Boasting a market cap of $20.31 billion, leading tech giant Hewlett Packard Enterprise Company (HPE) offers solutions enabling customers to seamlessly capture, analyze, and respond to data. With HPE preparing to unveil its fiscal fourth-quarter (ended October 31, 2023) earnings report on November 28, 2023, this article seeks to assess whether the stock presents a compelling investment opportunity.

Before delving into the fundamentals of HPE, let's first explore some recent developments within the company that may impact its future performance.

On November 15, HPE revealed a collaboration with Sauber Motorsport AG to enhance the aerodynamics of its Formula One race cars. Together, they have co-developed a High-Performance Computing (HPC) system tailored for Computational Fluid Dynamics (CFD), showcasing a substantial increase in computing performance compared to the preceding system.

On November 1, HPE revealed that it had been chosen to deploy the United Kingdom's fastest supercomputer, supported by £225 million ($283.41 million) in government funding. This substantial investment should bolster the company’s operations.

Moreover, on September 12, HPE introduced the Aruba Instant on AP22D, a Wi-Fi 6 access point, and the Aruba Instant On 1960 stackable switch with 2.5GB port capacity. These products are designed to enhance network performance, offering faster speeds, increased capacity, and improved security.

HPE’s goal is to provide small and medium-sized businesses (SMBs) with the tools needed to create a smoother network experience for employees, customers, guests, and Internet of Things (IoT) devices.

Over the past six months, HPE’s shares have surged 11.8% to close the last trading session at $15.83.

Here are the financial elements that could shape HPE’s performance in the near term:

Strong Financials

For the fiscal third quarter, which ended on July 31, 2023, HPE’s net revenues increased marginally year-over-year to $7 billion, while its gross profit rose 4.8% from the prior-year quarter to $2.51 billion.

The company’s net earnings amounted to $464 million and $0.35 per share, up 13.4% and 12.9% from the prior-year quarter, respectively. In addition, its free cash flow improved by 62.7% from the year-ago value to $955 million.

Solid Historical Growth

Over the past three years, HPE’s revenue, EBIT, and levered FCF have grown at CAGRs of 3.2%, 7.7%, and 38.7%, respectively. In addition, the company’s net income and EPS have improved at CAGRs of 925.7% and 924.3% during the same period, respectively.

High Profitability

The stock’s trailing-12-month net income margin of 3.64% is 105.8% higher than the 1.77% industry average. Likewise, its trailing-12-month Return On Common Equity (ROCE) of 5.23% is 550.2% higher than the industry average of 0.80%. Furthermore, HPE’s trailing-12-month EBITDA margin of 17.66% is 94.8% higher than the 9.07% industry average.

Discounted Valuation

In terms of forward non-GAAP P/E, HPE is trading at 7.42x, 67.7% lower than the industry average of 22.94x. Likewise, its forward EV/EBITDA multiple of 5.72 is 60.9% lower than the industry average of 14.63. Furthermore, its forward Price/Cash Flow ratio of 5.35x is 75.1% lower than the industry average of 21.51x.

POWR Ratings Exhibit Solid Prospects

HPE’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HPE has a B grade for Value, justified by its discounted valuation.

Within the Technology - Communication/Networking industry, HPE is ranked #3 out of the 46 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, Sentiment, and Quality. Get all ratings of HPE here.

Bottom Line

Recent collaborations and ventures highlight HPE's commitment to innovation and growth. The partnership with Sauber Motorsport AG to enhance Formula One race cars' aerodynamics, the deployment of the UK's fastest supercomputer with government funding, and the introduction of Wi-Fi 6 access points and stackable switches showcase the company's dedication to cutting-edge technology.

Overall, HPE appears to be well-positioned for potential growth and offers a discounted valuation, making it an appealing choice for investors seeking a blend of innovation, financial stability, and profitability in the dynamic technology sector and, therefore, it could be an ideal buy.

How Does Hewlett Packard Enterprise Company (HPE) Stack Up Against Its Peers? 

While HPE has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Technology - Communication/Networking industry: Gilat Satellite Networks Ltd. (GILT), Ceragon Networks Ltd. (CRNT), and Extreme Networks, Inc. (EXTR), with an A (Strong Buy) or B (Buy) rating. For exploring more Technology - Communication/Networking stocks, click here.     

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HPE shares were trading at $15.69 per share on Monday afternoon, down $0.14 (-0.88%). Year-to-date, HPE has gained 0.59%, versus a 20.28% rise in the benchmark S&P 500 index during the same period.

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