HPE: Juniper Acquisition Shows Positive Networking Focus, but It Doesn’t Impact Moat or Valuation

We maintain our $16 per share fair value estimate for Hewlett Packard Enterprise after the firm announced an agreement to acquire Juniper Networks. The deal values Juniper at almost $14 billion and would be the largest-ever acquisition for HPE. We like that HPE is investing in and focusing on its networking business, which we view as more differentiated and profitable than its other segments. Nevertheless, we don’t foresee the deal carving out an economic moat for the firm, nor do we see it as value-accretive. HPE’s pro forma networking business will still be a minority of sales, with commoditylike servers and storage taking up a larger portion of the mix. We believe that both HPE and Juniper lag wide-moat networking leaders like Cisco Systems and Arista Networks in technology, customer relationships, and market share. The market appears to see the deal moderately negatively—shares dipped 8% earlier in the week when rumors first broke. We see the stock as fairly valued.