Buy Surging Hewlett Packard Enterprise (HPE) Stock Before Earnings?

Hewlett Packard Enterprise (NYSE:HPE) shares have surged 34% in the last three months after it beat quarterly earnings estimates at the end of August. Now the question is will HPE’s recent run of success continue after it reports its quarterly financial results on Monday, November 25?

Hewlett Packard Enterprise’s Pitch

Hewlett-Packard split into Hewlett Packard Enterprise and HP Inc. (NYSE:HPQ) back in 2015. Today, as its name suggests, HPE sells enterprise-level servers, storage, networking gear, and more. HPE has lost ground to companies like Cisco (NASDAQ:CSCO) and fallen behind in the cloud computing age dominated by Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) .

In an effort to expand and adapt, the firm completed its purchase of supercomputing leader Cray Inc. in late September to help better compete in the high-performance computing and artificial intelligence markets against rivals like IBM (NYSE:IBM) . Investors should note that HPE has improved its profitability and generated better levels of free cash flow recently.

The company recently laid out plans to focus more on “as-a-service” offerings as everyone from Salesforce (NYSE:CRM) to Adobe (NASDAQ:ADBE) continue to find success. “HPE has a unique portfolio of assets and is well-positioned to redefine the edge-to-cloud experience and industry model,” CFO Tarek Robbiati said in prepared remarks on October 23

“We are capitalizing on customer demand for consumption-based IT solutions by committing to offer our entire portfolio as-a-Service by fiscal year 2022, which will help us drive sustainable profitable growth.”

Other Fundamentals

As we mentioned at the top, shares of HPE are up big in the last several months, but that hardly tells the whole story. HPE stock is up 18% in the last year, which lags its industry’s 33% climb. Plus, over the last three years, HPE stock is down nearly 28%, which could give the stock some room to run if it is able to impress Wall Street.

HPE stock closed regular trading Friday at just over $17 per share and has traded as low as $12 in the past year. This price point might be attractive for investors that are searching for “cheap stocks.” Along with its price, HPE currently holds an “A” grade for Value in our Style Scores system.

HPE is trading at 9.2X forward 12-month Zacks Consensus earnings estimates at the moment, which comes in well below its industry’s 16.8X. More importantly, HPE has traded as high as 14X in the past two years, with a 9.9X median.

On top of that, the company announced last month that it raised its quarterly dividend to $0.12 per share, up from $0.1125, which will be payable on January 2. The firm’s current dividend yield comes in at 2.63%, which easily tops the 10-year U.S. Treasury’s 1.77%.

Outlook

Looking ahead, HPE’s fourth-quarter fiscal 2019 sales are projected to slip 6.1% from the year-ago period to $7.46 billion, based on our current Zacks estimates.

Investors should note that the firm provided longer-term revenue guidance recently for between fiscal 2019 and 2022, which it outlined in its October 23 financial strategy update. “The company expects compounded annual revenue growth rate of 1-3% adjusted for currency driven by Edge, Storage, High Performance Compute & Mission Critical Systems and related services.”

Meanwhile, HPE’s adjusted Q4 earnings are projected to pop 2.2% to $0.46 per share, with its full-year EPS figure expected to surge 11.5%. Peeking further down the road, HPE’s adjusted fiscal 2020 earnings are projected to climb another 6.4% higher.

Bottom Line

HPE’s fiscal 2020 earnings revision picture has turned more positive recently, as has its Q4 estimate, which helps HPE hold a Zacks Rank #2 (Buy). The firm has also topped our quarterly earnings estimates in the trailing four periods by an average of 14%.

HPE, which rocks an “A” grade for Growth, is set to report its Q4 fiscal 2019 financial results after the closing bell on Monday, November 25. Some investors might want to take a chance on HPE before the firm reports, but it is likely better to wait and see how Wall Street reacts and then make a move as the tech company tries to transform its business.

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