Hewlett Packard Enterprise Analyst Day: What Are Oppenheimer's 4 Key Takeaways?

Oppenheimer maintains its Outperform rating and $21 price target on Hewlett Packard Enterprise Co HPE following the company's investor event.

"We come away more confident in the company's execution and focus and remain convinced in its ability to continue to drive better results out of its remaining businesses," analyst Ittai Kidron wrote in a note.

The analyst said the spinoff of Enterprise Services should allow more focus and transparency to surface, while continued R&D investment should provide more Enterprise Group opportunities for continued growth.

Key Takeaways

Below are Kidron's key takeaways from the event:

• 1. "Enterprise Group margins should rise from current levels as product mix and productivity improve and more cost cutting is applied.
• 2. "Long-term total revenue growth should track global GDP patterns.
• 3. "Software is likely to remain in place for the foreseeable future.
• 4. "FCF should reach almost full transparency by FY18, accelerated by the spin-off of Enterprise Services."

Related Link: Hewlett Packard Enterprise Should Report In-Line Earnings, Guidance

Bottom Line

Kidron noted that enterprise group operating margins should improve and circle back to historical levels (14–16 percent). Furthermore, the company sees cloud, data center, campus and edge achieving 2–3 percent long-term growth, TS at 5–6 percent and software at 8–9 percent.

"Overall management views global GDP growth as a long-term growth target, although it's our impression that HPE can exceed targets in the next 12–18 months given R&D investment and strength of product portfolio," Kidron highlighted.

The company presented software as an important segment, and the analyst said there are no near-term plans to sell/spin off the business.

In addition, CFO Tim Stonesifer detailed expected changes in the company's cash balance and free cash flow outlook.

"While restructuring and separation charges are still expected to impact FY16–17, in FY18 only $200 million of charges would remain, bringing more clarity into pro forma FCF potential," the analyst said.

Furthermore, Kidron said the company's operating cash balance by year-end should reach $6.5 billion–$7.0 billion (excluding dividend and buybacks, but including proceeds from H3C and Mphasis sales).

At time of writing, shares of Hewlett Packard Enterprise were up 1.36 percent at $19.42.