HPE Still Beats HPQ

For years, Hewlett Packard Enterprise Co (HPE) and HP Inc. (HPQ) were parts of the same company, the pioneer Hewlett-Packard. But since November 1, 2015, they have been separate publicly traded companies.

HP Inc. retained the printing and PC business segments, while HPE retained the technology solutions segments.

*doesn’t include dividends

Source: Finance.Yahoo.com 2/3/17

Wall Street warmed up to the split of old HP, with both stocks outperforming the Powershares QQQ Trust, with HPE shares beating HP Inc. by a big margin. For obvious reasons: the split was associated with massive layoffs, which helped the two companies boost profit margins—see tables.

Then there’s the increasing flexibility and better focus, which comes with a smaller scale and scope, and a slow down in the pace the PC and printer business.

Still, HPE experienced a better margin improvement than HPQ, and that could explain its superior market performance.

HPE’s and HP’s Key Metrics 1/26/2017

Source: Yahoo.finance.com

Old HPQ’s Key Financial Metrics 9/16/2015

Source: Finance.Yahoo.com

Yet the difference in the performance of the two stocks is far too big to be explained by margin improvements alone. Something else is in play -- like Wall Street’s expectations about the prospects for the two companies. HPE’s business segments are expected to fare better than HPQ’s, especially its Finance Services segment, which is tied to Wall Street’s recent fortunes.

Then there are a number of strategic initiatives, which have helped the company improve flexibility.

*Non-GAAP

Source: Company Reports

But judging from HPE’s financial reports, it doesn’t seem to be the case. That’s why Wall Street may find itself deeply disappointment.