Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Should You Buy HP Enterprise (HPE) Stock Ahead Of Earnings?

Published 05/21/2018, 06:28 AM
Updated 07/09/2023, 06:31 AM

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

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!

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>



Cisco Systems, Inc. (CSCO): Free Stock Analysis Report

International Business Machines Corporation (IBM): Free Stock Analysis Report

Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report

Microsoft Corporation (MSFT): Free Stock Analysis Report

Original post

Zacks Investment Research

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.