HP: Time to Buy?

Hewlett Packard Enterprise (HPE) announced second quarter ended April 30, 2016 total revenue of $11.6 billion, down 5 percent sequentially from $12.2 billion in first quarter of fiscal year 2016 and down 11 percent year-over-year from $13.0 billion in second quarter of 2015.

Hewlett declared second quarter of 2016 net earnings of $629 million or $0.36 per diluted share, up 6 percent sequentially from $592 million or $0.33 per diluted share in first quarter of 2016 but, down 38 percent year-over-year from $1.01 billion or $0.55 per diluted share in second quarter of 2015.
Going forward, the company estimates third quarter of 2016 non-GAAP diluted net EPS from ongoing operations in the range of $0.37 to $0.40.

The key computing-technology company reported continued year-over-year decline in both its top and bottom lines primarily due to weaker quarterly sales for the company, driving down its key margins.

Some weakness

A majority of the second quarter total revenue growth for HP was primarily driven by notebooks followed by print-supplies and desktops. The printing and personal systems growth segments each delivered 17.3% and 3.5% of non-GAAP operating margins respectively. Total revenue comprised of regional revenue contributions from Americas, EMEA and APJ of 46%, 34% and 20% respectively.

HP has continued to witness consistent decline in its top line since the fourth quarter of 2014 with adjusted diluted EPS illustrating continued growth since fourth quarter of 2015 mainly due to weaker company sales for the quarter coupled with expanding operating expenditures, negatively impacting the company’s key margins.

The well-diversified revenue growth by products and sustainable cost-optimization efforts of HP are believed to deliver continued long-term profitability for the company while delivering attractive shareholder returns.

New products will drive growth  

HP’s revenue expansion by constant currency is somewhat better than the revenue development as reported but, still there’s notable top line loss for the quarter. Regional revenue figures of HP depict uncertain future movements with the US and EMEA depicting growing near-term revenue trends while the Americas and Asia Pacific are illustrating continued sequential decline in the company’s top line.

The supplies revenue for HP is expected to alleviate by the conclusion of fiscal year 2017 with average selling price growing both year-over-year and sequentially on a constant currency basis. Further, HP has increased its share of ink and laser hardware segment by 2 points sequentially along with constant currency expansion in the Graphics segment for the 11th successive quarter. HP’s personal systems segment depicted superior growth and better than the market’s average with a total share of 19.4% for the quarter, an increase of 0.4 points year-over-year.

The company grew gross margin by 1 point quarter-over-quarter and year-over-year while grown ASP sequentially. HP also launched advanced Elite x3 for its mobile platform in addition to the skinniest notebook globally, Spectre 13, while illustrating solid constant currency growth in strategic areas of mobile workstations, commercial notebooks, commercial mobility, and services.

HP seems focused on driving sustainable long-term growth through planned new introductions of a new gaming machine, HP OMEN and delivering solid innovation in 3-D printing industry. However, the overall growth for the printing segment seems weaker than the personal systems segment which recently has displayed an upside potential.

The computing technology major is consistently focused on expanding its total cash flows including cash flow from operations and free cash flows while minimizing the total debt position through reduction of non-core expenses.

Importantly, The Board of Directors at Hewlett Packard Enterprise Company has recently declared second a quarter dividend of $0.124 per share and a consolidated dividend payment amount of $213 million. In addition, HP has announced $305 million of share repurchase program during the quarter and targets on repurchasing nearly 28.7 million shares.

The ongoing efforts of HP to enhance cash flow levels converges well with its continued commitment to deliver attractive shareholder returns in the form of dividends and strategic share repurchases.

Conclusion

Overall, the investors are advised to “Hold” their position in Hewlett Packard Enterprise Company considering the company’s significant long-term growth prospects but currently weaker financial position with notable total debt of $16.14 billion against weaker total cash position of $8.50 billion only, restricting the company to make future growth investments. The profit margin of 4.21% seems satisfactory. The PEG ratio of 4.09 indicates healthy company growth.
Published on May 31, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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