Analyst Note| Mark Cash |
No-moat Hewlett Packard Enterprise's analyst day gives us confidence in the company's ability to find pockets of growth while its legacy offerings face challenging spending environments. We believe shifting its entire portfolio to as-a-service stays aligned with customer consumption trends for IT infrastructure. Additionally, we positively view HPE fueling investments into areas like edge compute, software-defined wide-area networking, or SD-WAN, and high performance compute, as these higher-growth markets can help offset headwinds in commodity compute and storage markets. While management expects HPE's revenue to grow at only a 1%-3% CAGR during fiscal 2020-23, it also expects adjusted operating profit and adjusted earnings to rise 10%-12% and 7%-9%, respectively, over the same time. In our view, HPE is prudently balancing investing in higher-growth opportunities without overextending itself, and ensuring shareholder returns through its dividend. HPE shares increased over 2% after the analyst day to break $10 as HPE reaffirmed fiscal 2020 guidance and provided guidance above CapIQ consensus expectations for fiscal 2021. We are maintaining our $13 fair value estimate and believe investors have an attractive entry point.