Hewlett Packard Needs Top-Line Stability, If Not Growth, Before It Becomes A Buy

“Fiscal 1Q17 represented a fourth consecutive negative annual top-line comp and the third consecutive quarter in which revenue lagged the consensus forecast,” Argus’ Jim Kelleher said about Hewlett Packard Enterprise Co HPE, while downgrading the rating on the company from Buy to Hold.

Weak Top Line

The company cited various internal and external challenges, while reducing its FY 2017 non-GAAP EPS guidance.

The analyst now expects the non-GAAP EPS for the second half of 2017 to lag the second-half 2016 results.

Kelleher mentioned that there are signs that the weak top line trends at Hewlett Packard are continuing, putting the company’s EPS growth at risk.

Related Link: Hewlett Packard Enterprise's Q1 Marred By Weak Sales At Microsoft

For fiscal Q1 2017, the company reported a 10 percent decline in the GAAP revenue, or a 4 percent decline adjusted for asset divestitures and in constant currency.

“On a pro forma basis, revenue has declined year-over-year in every quarter since fiscal 2Q16,” the analyst pointed out.

The non-GAAP EPS for the quarter came in at $0.45, rising 10 percent year on year.

Non-GAAP EPS of $0.45 per diluted share for fiscal 1Q17 increased 10% year-over-year.

FY Guidance

“But the company dialed down its full-year non-GAAP EPS outlook, citing three issues: adverse foreign currency movements, commodity pricing pressures, and certain execution issues,” Kelleher reported.

The analyst believes that the market is “unlikely to have much patience with flawed execution,” given that the issues being faced by Hewlett Packard seem to be self-inflicted and occurred in areas that would be “part of a much smaller HPE going forward.”

The stock has seen a strong run since inception, having risen over 50 percent during calendar 2016 and declining only 3 percent in 2017.

However, Kelleher would prefer to wait for signs of top line stability, if not growth, before moving from the sidelines.