RBC Capital Highlights 6 Takeaways from HP Enterprise (HPE) CES Meeting

RBC analyst, Amit Daryanani, met with HP Enterprise (NYSE: HPE) IR representative at CES and came away with 6 points:

1) Technology services are poised to achieve stability in FY16 as growth from 3PAR and EG hardware offsets the BCS declines. HPE thinks services revenues in FY16 should stabilize (after -2% in H2:15 adjusted for 1x issues) as contribution from 3PAR/x86 server growth offsets the declines from BCS-centric revenues.

2) Servers: remain positive and expect to see growth in FY16 (though below FY15 rates) driven by ASP benefits and share gains. For FY16, HPE is calling for mid-single digit y/ y revenue growth. Improved ASPs have been the majority driver of revenue growth.

3) Storage: 3PAR continues to see robust growth and should see further gains given ongoing disruption in the marketplace. 3PAR continues to see robust growth that should sustain in FY16 given the ongoing disruption in Enterprise storage.

4) Services: Remain focused on achieving 7-9% op-margins in FY16 (we think you could see upside) driven by a more stable revenue environment coupled with cost containment efforts

5) FCF: Remain on target to achieve $2.0B+ FCF in FY16 and drive towards $3.5B+ FCF on a normalized basis

6) Capital Allocation: M&A focus is smaller deals (like Aruba) and would be open to doing more aggressive buybacks in absence of M&A (we think likely especially once they get proceeds from H3C sale).

HPE believes it should generate $2.0–2.2B in Free Cash Flow, up from ~$1.0B in FY15. HPE plans to return >50% of FCF to shareholders through dividends/repurchase. For potential acquisitions, they continue to pursue deals similar to the Aruba profile.

No change to Sector Perform rating or $15 PT.

For an analyst ratings summary and ratings history on HP Enterprise click here. For more ratings news on HP Enterprise click here.

Shares of HP Enterprise closed at $14.80 yesterday.

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