Should You Buy HP Enterprise (HPE) Stock Ahead Of Earnings?
Zacks Investment Research | May 21, 2018 06:28AM ET
Shares of Hewlett Packard Enterprise (NYSE:HPE) dipped slightly on Monday, just one day before the company is scheduled to release its latest quarterly earnings report. HPE has lost steam since its strong run to all-time highs earlier this year, but as a key figure in the enterprise tech industry, its earnings announcement has the potential to move the market.
Enterprise tech has become a closely-followed business thanks to the widespread adoption of new technologies, including data center networking and cloud computing. HPE will hope to stand out from a competitive pack which includes IBM (NYSE:IBM) , Cisco (NASDAQ:CSCO) , and Microsoft (NASDAQ:MSFT) .
So what should we expect to see from HPE when it reports on Tuesday? Let’s take a closer look.
Latest Outlook
According to our latest Zacks Consensus Estimates, analysts are expecting HPE to report adjusted earnings of $0.31 per share and total revenue of $7.33 billion. This would mark EPS growth of 24.0%, while year-over-year sales comparisons will be impacted by the firm’s divesture of its services and software units.
It is also worth noting that HPE’s consensus earnings projection has moved five cents higher over the duration of the quarter, indicating an improved outlook from a few months ago.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that HPE surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
HPE is currently sporting a Zacks Rank #3 (Hold) and an Earnings ESP of 0.0%. This means that the most recent estimates have been in line with the consensus. In other words, our model is not conclusively calling for a beat.
Most Recent Valuation
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HPE is trading at about 12.1x forward 12-month earnings. This is a discount to the broader tech sector’s average of 18.8x, but within the range investors have come to expect over the past year. Still, HPE does look like a decent value option ahead of its report.
Surprise History
Another important thing to consider ahead of HPE’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The tech firm has actually missed EPS estimates in two out of the trailing four quarters, and those misses put a significant dent in the stock.
We like to judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. During the two aforementioned misses, HPE moved about 7% lower in these windows. However, the stock climbed nearly 12% during this window when the company beat EPS estimates last quarter.
Bottom Line
HPE is currently a Zacks Rank #3 (Hold), and although it looks like attractive for value investors ahead of its report, the stock behaves erratically during earnings season and might not be worth the risk. However, HPE was red hot to start the year and could very well surge back to new highs on the back of great results.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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