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Stock Analyst Update

HP Enterprise Purchase a Positive

Acquiring Nimble Storage will allow this no-moat company to provide a full menu of flash storage solutions across every market segment.


 Hewlett Packard Enterprise (HPE) announced March 7 that it has entered into an agreement to acquire Nimble Storage, a provider of all-flash and hybrid-flash storage products. HP Enterprise will pay $12.50 per share in cash, which represents a purchase price of around $1 billion and implies fiscal 2016 price/sales of 2.5. We think this acquisition aligns well with HP Enterprise’s capital-allocation framework and strategy of focusing on high-growth segments of the market. Nimble Storage’s flash offerings for the entry-level to midrange segments are complementary to HP Enterprise’s midrange to high-end 3PAR solutions, and we believe the deal will allow HP Enterprise to provide a full menu of flash storage solutions across every market segment. We think HP Enterprise is investing its resources in the right areas of IT data center infrastructure hardware, as the all-flash market is estimated to be approximately $15 billion in 2016 and is expected to grow to nearly $20 billion by 2020, according to IDC. Additionally, the deal is expected to be accretive to HP Enterprise's earnings in the first full fiscal year following the close. HP Enterprise’s share price was flat in response to the news. We think the shares remain fairly valued, and we reiterate our $22 fair value estimate for this no-moat company. We would recommend prospective investors to wait for a wider margin of safety before investing in this name.

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Timothy Feeney does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.