Is the Bearish Sentiment on Hewlett Packard Enterprise Company (HPE) Justified?

Hewlett Packard Enterprise Company may be undervalued with poor growth indicators, but the 17 analysts following the company give it an rating of hold. Their target prices range from $15.0 to $21.0 per share, for an average of $17.85. At today's price of $16.91, Hewlett Packard Enterprise Company is trading -5.27% 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. The large-cap Technology company is based in Spring, TX. 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 11.0, compared to an average of 27.16 for the Technology sector. Considering its EPS guidance of $2.15, the company has a forward P/E ratio of 7.9.

The average compound growth rate of the company's last 6 years of reported earnings per share is -6.5% (the company doesn't issue forward EPS guidance). On this basis, the company's PEG ratio is -1.61, which indicates that its shares are overpriced.

On the other hand, the market is potentially undervaluing Hewlett Packard Enterprise Company in terms of its book value because its P/B ratio is 1.02. In comparison, the sector average P/B ratio is 6.23. The company's shares are currently -3.2% 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.

2018 2019 2020 2021 2022 2023
Revenue (MM) $30,852 $29,135 $26,982 $27,784 $28,496 $29,655
Gross Margins 6% 4% -1% 4% 3% 4%
Operating Margins 7% 5% -1% 13% 3% 4%
Net Margins 7% 4% -1% 12% 3% 4%
Net Income (MM) $2,012 $1,049 -$322 $3,427 $868 $1,079
Net Interest Expense (MM) -$274 -$177 $469 $494 $483 $513
Depreciation & Amort. (MM) $2,576 $2,535 $2,625 $2,597 $2,480 $2,579
Earnings Per Share $1.23 $0.77 -$0.25 $2.58 $0.66 $0.82
Diluted Shares (MM) 1,553 1,366 1,294 1,330 1,322 1,294
Free Cash Flow (MM) $8 $1,141 -$143 $3,369 $1,471 $1,468
Capital Expenditures (MM) $2,956 $2,856 $2,383 $2,502 $3,122 $3,153
Net Current Assets (MM) -$13,294 -$16,154 -$14,906 -$14,233 -$13,648 -$13,896
Long Term Debt (MM) $10,136 $9,395 $12,186 $9,896 $7,853 $8,866
Net Debt / EBITDA 1.58 2.38 3.98 1.12 1.51 1.93
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.