Hewlett Packard Enterprise Company (HPE) Seems Undervalued - Why Isn't It Rated as Buy?

Hewlett Packard Enterprise Company may be undervalued with strong growth indicators, but the 17 analysts following the company give it an rating of hold. Their target prices range from $14.0 to $21.0 per share, for an average of $17.24. At today's price of $16.32, Hewlett Packard Enterprise Company is trading -5.37% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Hewlett Packard Enterprise Company provides solutions that allow customers to capture, analyze, and act upon data seamlessly in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan. Based in Spring, TX, the large-cap Technology company has 60,200 full time employees. Hewlett Packard Enterprise Company has provided a 2.9% dividend yield over the last 12 months.

Hewlett Packard Enterprise Company has a trailing twelve month P/E ratio of 20.7, compared to an average of 27.16 for the Technology sector. Considering its EPS guidance of $2.13, the company has a forward P/E ratio of 7.7.

The average compound growth rate of the company's historical and projected earnings per share is 22.6%. On this basis, the company's PEG ratio is 0.85, which suggests that its shares are underpriced.

Furthermore, the market is potentially undervaluing Hewlett Packard Enterprise Company in terms of its book value because its P/B ratio is 1.03. In comparison, the sector average P/B ratio is 6.23. The company's shares are currently -12.1% below their Graham number, indicating that its shares have a margin of safety.

The question is, why does Hewlett Packard Enterprise Company have a bad rating if it is apparently undervalued in terms of traditional metrics? One reason could be the company's disappointing rate of margin growth, which in the analysts' opinion, will continue in coming years.

2019-10-31 2020-10-31 2021-10-31 2022-10-31
Revenue (MM) $29,135 $26,982 $27,784 $28,496
Gross Margins 32.6% 31.4% 33.8% 33.4%
Operating Margins 9.8% 5.5% 7.8% 7.6%
Net Margins 3.6% -1.19% 12.33% 3.05%
Net Income (MM) $1,049 -$322 $3,427 $868
Net Interest Expense (MM) -177 -215 -211 -188
Net Interest Expense (MM) -$177 -$215 -$211 -$188
Depreciation & Amort. (MM) -$2,535 -$2,625 -$2,597 -$2,480
Earnings Per Share $0.77 -$0.25 $2.58 $0.79
EPS Growth n/a -132.47% 1132.0% -69.38%
Diluted Shares (MM) 1,366 1,294 1,330 1,292
Free Cash Flow (MM) $1,141 -$143 $3,369 $1,471
Capital Expenditures (MM) -$2,856 -$2,383 -$2,502 -$3,122
Net Current Assets (MM) -$19,511 -$21,363 -$18,804 -$16,708
Current Ratio 0.79 0.88 0.91 0.88
Long Term Debt (MM) $9,395 $12,186 $9,896 $7,853
Net Debt / EBITDA 2.36 4.88 1.48 2.34
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.