Hewlett Packard Enterprise (NYSE:HPE) reports its first-quarter 2020 earnings after the bell on March 3. What should we expect to see from the company and what effect might the numbers have on HPE stock? If Q4’s performance is any hint, it may not be good news for investors.
Shares in the company have already slumped 16% in the past two weeks thanks to the coronavirus from China and its chilling effect on the markets. A repeat of Q4’s revenue miss could send the company’s stock to levels not seen in four years.
Here’s what to expect from Hewlett Packard Enterprise after earnings next week.
What Happened in Q4?
To get an idea of what to expect when HPE reports its Q1 2020 earnings, it’s worth looking at what happened in November when the company delivered its Q4 2019 earnings. It was a bloodbath for HPE stock, to put it mildly.
The company beat earnings estimates of 46 cents per share, delivering 49 cents per share. But revenue was a miss at $7.2 billion. While that revenue was described as being “stable for the last three quarters,” it was down 9% year-over-year. That was a result of a global server market that was in decline for most of 2019.
Hewlett Packard Enterprise was duking it out with Dell (NYSE:DELL) for the top spot, however that big drop in revenue spooked the market. HPE stock dropped 8.5% in one day.
It has been all downhill since then for Hewlett Packard. It slid another 9% over the next two-and-a-half months. After the coronavirus panic pushed it down further, HPE now trades at $12.58, putting its loss in value over the past 12 months at 23%.
Could things get even worse after Hewlett Packard Enterprise reports its Q1 2020 earnings on Monday evening?
Bottom Line for HPE Stock
It was announced in 2014 that the original Hewlett-Packard would be divided into two companies, Hewlett Packard Enterprise and HP (NYSE:HPQ). The first would focus on the enterprise market, the second on PCs and printers. At the time, Harvard Business School professor Marco Iansiti had this to say about the plan:
HP was Silicon Valley. That’s how Silicon Valley started. It’s one of those beautiful, original Silicon Valley stalwarts that is in some ways winding down or breaking up into individual pieces.
Since Hewlett Packard Enterprise started trading in October 2015, its value has increased by 27%. HP has done better, boosting its share prices by 66% in the same timeframe. InvestorPlace’s Dana Blankenhorn wrote of HPE in 2019:
It is undervalued, but it has been underperforming for so long that many analysts consider it barely worth holding.
Those analysts are looking a little more favorably on HPE these days. While PC sales remain stagnant at best, the market for severs is set to increase by 5-6% in 2020, after falling in 2019. Investment analysts surveyed by The Wall Street Journal have had both stocks rated as a consensus “hold” for several months. However, with an average 12-month median price target of $17.15, they see HPE stock as having 36% upside. HPQ, on the other hand, they see as having a more modest 11.6% upside.
Hewlett Packard Enterprise’s Q1 numbers are expected to reflect the weakness in the server market that lasted through 2020. The company is expected to more or less repeat its Q4 performance — delivering an increase on earnings, but with revenue that’s down on a year-over-year basis. That could trigger another selloff. If so, that would be a buying opportunity for HPE stock, especially with the world server market on track to recover in 2020.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.