On Wednesday, BofA Securities updated its view on HP (NYSE:HPQ) Enterprise (NYSE:HPE), increasing the price target to $19.00 from the previous $17.00, while keeping a Neutral rating on the stock. The adjustment reflects the firm's recognition of HP Enterprise as a significant player in the AI server market, which is experiencing robust demand.
The analyst noted that HP Enterprise's AI server revenue for the first quarter of fiscal year 2024 was lower than anticipated, primarily due to a shortage in GPU supplies. Additionally, the time required for customers to prepare data center spaces, including power and cooling systems, has extended the delivery time for AI servers.
The company's backlog of accelerated processing units (APUs) decreased to $3 billion, down from $3.6 billion at the end of the fiscal year 2023. It is estimated that half of this backlog is attributed to services, with the remaining half pertaining to hardware sales.
The firm maintains a neutral stance on HP Enterprise, citing a balanced risk/reward outlook. The long-term shift towards higher-margin software and as-a-Service offerings is seen as a positive. However, this is counterbalanced by a current environment of weaker enterprise spending.
The new price objective is based on an 8x multiple of the estimated calendar year 2025 earnings per share (EPS) of $2.26. This is a change from the previous valuation, which used a 9x multiple of the calendar year 2024 EPS estimate of $1.94.
Lastly, HP Enterprise is set to restructure its reporting segments. The company plans to merge its Compute and HPC & AI segments into a singular "Server" segment. This move aims to integrate general-purpose computing with high-performance computing, supercomputing, and AI systems under one unified division.
InvestingPro Insights
Following the recent update from BofA Securities on HP Enterprise, real-time data from InvestingPro provides additional insights into the company's financial health and market performance. With a Market Cap of $23.08B and a P/E Ratio of 12.06, HP Enterprise appears to hold a stable position in the market. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands at 10.38, suggesting a potentially more attractive valuation for investors considering the company's earnings potential.
InvestingPro Tips highlight that HP Enterprise is a prominent player in the Technology Hardware, Storage & Peripherals industry, which aligns with BofA Securities' recognition of the company's significance in the AI server market. Additionally, it is worth noting that HP Enterprise has maintained dividend payments for 10 consecutive years, with a Dividend Yield of 2.88% as of the latest data, reinforcing its appeal to income-focused investors.
For those interested in a deeper analysis, InvestingPro offers further tips on the company's performance and outlook. There are 15 additional InvestingPro Tips available, providing a comprehensive view of HP Enterprise's financial metrics, market trends, and analyst forecasts. To access these valuable insights and enhance your investment strategy, consider using the promo code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at: https://www.investing.com/pro/HPE.
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