Hewlett Packard Enterprise expected to post Q2 EPS of $0.36

Information technology giant Hewlett Packard Enterprise (NYSE: HPE) is scheduled to report second-quarter 2019 financial results on Thursday, May 23, after the closing bell. Analysts expect the company to report Q2 earnings of 36 cents per share, on revenues of $7.44 billion, down 0.4% year-over-year.

The Wall Street earnings estimate falls within the management projection for the quarter of 34 to 38 cents per share. It may be noted that the company has surpassed analysts’ estimate in the past four quarters.

In the last-reported quarter, HPE’s earnings more-than-doubled to $0.34 per share, aided by broad-based demand growth that lifted revenues by 10% to $7.5 billion. Buoyed by the strong results, the management revised up its outlook for the fiscal year.

While Aruba products and services are expected to drive growth in the Intelligent Edge unit, Nimble is likely to push storage revenues. However, the residual impact from the exit of the Tier-1 server business may offset much of the growth in the other units.

Hewlett Packard has also been on a mission to diversify its portfolio. The most recent move in this regard is the acquisition of Cray (NASDAQ: CRAY) for about $1.30 billion, which gives HPE a leeway into the supercomputer business.

The deal values Cray’s stock at $35, representing a premium of about 17%, and is tentatively scheduled to close early next year. It is expected to be accretive to HPE’s adjusted earnings after one full year of completion. Meanwhile, the management has left its free cash flow outlook 
for fiscal 2020 unchanged at $1.9-$2.1 billion, after factoring in the integration costs associated with the transaction.

The acquisition is meaningful in a way that it helps HPE stay relevant in a competitive market that is dominated by the likes of International Business Machines (NYSE: IBM).

HPE shares have gained 13.4% in the year-to-date period. The stock has a 12-month average price target of $16.56, suggesting an 8% upside from the current trading price. Most analysts covering the stock have a Hold rating.

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