Analysts blame macro headwinds for the drop in HP Enterprise stock after the company cut its profit forecast.
HP Enterprise (NYSE:HPE) cut its adjusted EPS guidance for the whole year, which sent its shares down by more than 6% in Thursday’s premarket trading.
The enterprise IT company’s adjusted EPS for the second quarter was 44 cents, down from 46 cents at the same time last year and just below the 45 cents per share that analysts had predicted. Net sales came in at $6.71 billion, which is up 0.2% year over year but less than the $6.81 billion that most people expected.
HPE’s compute revenue was $2.99 billion, which was up 0.4% year over year and more than the consensus estimate of $2.92 billion. The gross margin for Q2 was 34.2%, which was the same as what analysts expected. However, the adjusted operating margin was only 9.3%, which was lower than what analysts expected, which was 10.3%.
HPE expects its adjusted earnings per share for Q3 to be between 44c and 54c, while analysts were expecting 52c per share. On a full-year basis, the company expects adjusted EPS in the range of $1.96 to $2.10, which is lower than the previous estimate of $2.03 to $2.17 and lower than the analyst estimate of $2.10.
When currency changes are taken into account, HP Enterprise expects its revenue to grow by between 3% and 4% in FY. It thinks that Russia’s invasion of Ukraine will cost its business a total of $126 million in the second quarter.
Morgan Stanley analyst Meta Marshall kept HPE’s Underweight rating and $15.00 per share price target after the company’s results showed that China, Russia, and the supply chain are big problems for the company.
“Order activity stayed strong, but comments about Europe and the macro economy as a whole make us cautious. In a client note, “Remain UW on near-term exposure to macro risk vs. valuation.”
Amit Daryanani, an analyst at Evercore ISI, said that “macro noise” made it hard to see the strong demand trends.
“Even though FQ2 results and FQ3 guidance were below expectations, we think overall demand trends are still strong, which should help HPE’s financial performance improve toward the end of FY22/FY23 as supply constraints ease. We keep our Outperform rating and our $21 price goal. “For the stock to continue to outperform, we think investors need a) a better use of free cash flow (FCF) and b) HPE to use its FCF to increase value (by selling H3C, for example),” Daryanani told clients.
