Hewlett Packard Scales 52-Week High On Raised Price Target

Shares of Hewlett Packard Enterprise Company (NYSE:HPE) hit a new 52-week high of $20.17 yesterday after investment firm Oppenheimer reiterated its “Outperform” rating on the stock and raised the target price to $25 from $21.

Ittai Kidron, the research analyst at Oppenheimer, revealed extensive evaluation of Hewlett Packard Enterprise’s financials after the impressive second-quarter fiscal 2016 results and the announcement of the spin-off of the Enterprise Services business before merging it with Computer Sciences Corporation (NYSE:CSC) .

Per the analyst, post the spin-off, the company will have a net cash position of $7.2 billion, an ongoing annual free cash flow of $3 billion and a recurring profit profile. Based on Oppenheimer’s current valuations and estimates for fiscal 2017, the stock is trading at 2.8x EV/EBITDA and 0.6x EV/sales.

The cheap valuation offers Hewlett Packard Enterprise a significant upside potential, which is why Oppenheimer believes that this is the right time for parking money in the stock.

Notably, Hewlett Packard Enterprise’s shares have been on the rise since on May 24, 2016, when the company declared robust second-quarter fiscal 2016 results and announced major progress on its ongoing restructuring initiative.

This was the second quarterly earnings release by Hewlett Packard Enterprise post its split from Hewlett-Packard Company. Notably, Hewlett-Packard Company split itself into two standalone companies — HP Inc. (NYSE:HPQ) and Hewlett Packard Enterprise — effective Nov 1, 2015. Post the split, Hewlett-Packard Company’s PC and printer business started operating under HP Inc., while Hewlett Packard Enterprise specializes in commercial tech products.

During the second quarter of fiscal 2016, Hewlett Packard Enterprise’s earnings met the Zacks Consensus Estimate while revenues beat the mark.

In addition, during its last earnings release, the company announced that it will spin off its Enterprise Services segment, marking a major step toward restructuring the struggling IT services business. Thereafter, Enterprise Services will be combined with Computer Sciences Corporation. The transaction is expected to allow Hewlett Packard Enterprise to focus better on faster growing businesses and unlock value for shareholders.

Since its second-quarter earnings release, the stock has gained over 23%. Moreover, the stock has delivered a strong year-to-date return of 31.5%. The average trading volume for the last three months aggregated approximately 10.95 million.

Some of the optimism surrounding the stock can also be attributed to the recently released global server market data for the first quarter of 2016 by two independent research firms — Gartner Inc. (NYSE:IT) and International Data Corporation (“IDC”).

As per the reports, although worldwide server revenues witnessed a year-over-year decline, Hewlett Packard Enterprise was the only server vendor to register top-line growth during the first quarter.

Going forward, Hewlett Packard Enterprise’s focus on strategic divestments and initiatives to return value to shareholders in the form of dividend and share repurchases should provide material tailwinds.

However, macroeconomic challenges and tepid IT spending are near-term concerns. Competition from International Business Machines (NYSE:IBM) and Oracle (NYSE:ORCL) add to its woes.

Currently, Hewlett Packard Enterprise carries a Zacks Rank #3 (Hold).