Hewlett Packard Enterprise (HPE)

Enterprise technology company Hewlett Packard Enterprise (NYSE:HPE) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 18.5% year on year to $9.14 billion. On top of that, next quarter’s revenue guidance ($9.9 billion at the midpoint) was surprisingly good and 4.1% above what analysts were expecting. Its non-GAAP profit of $0.44 per share was 5.4% above analysts’ consensus estimates.

Company Overview

Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

HPE competes with Dell Technologies (NYSE:DELL) and Cisco Systems (NASDAQ:CSCO) across most of its business segments. In cloud services, it faces competition from public cloud providers like Amazon Web Services (NASDAQ:AMZN), Microsoft Azure (NASDAQ:MSFT), and Google Cloud (NASDAQ:GOOGL). In networking, it competes with Juniper Networks (NYSE:JNPR), which HPE is in the process of acquiring.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $33.08 billion in revenue over the past 12 months, Hewlett Packard Enterprise is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because finding new avenues for growth becomes difficult when you already have a substantial market presence. For Hewlett Packard Enterprise to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, Hewlett Packard Enterprise grew its sales at a mediocre 4.2% compounded annual growth rate over the last five years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Hewlett Packard Enterprise’s annualized revenue growth of 5.6% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, Hewlett Packard Enterprise reported year-on-year revenue growth of 18.5%, and its $9.14 billion of revenue exceeded Wall Street’s estimates by 6.5%. Company management is currently guiding for a 17% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.1% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and implies its newer products and services will spur better top-line performance.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Hewlett Packard Enterprise was profitable over the last five years but held back by its large cost base. Its average operating margin of 4% was weak for a business services business.

Looking at the trend in its profitability, Hewlett Packard Enterprise’s operating margin decreased by 2.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Hewlett Packard Enterprise’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Hewlett Packard Enterprise generated an operating margin profit margin of 2.7%, down 4.4 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Hewlett Packard Enterprise’s unimpressive 5.2% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Hewlett Packard Enterprise’s two-year annual EPS declines of 7.5% were bad and lower than its 5.6% two-year revenue growth.

We can take a deeper look into Hewlett Packard Enterprise’s earnings to better understand the drivers of its performance. Hewlett Packard Enterprise’s operating margin has declined over the last two yearswhile its share count has grown 8%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q2, Hewlett Packard Enterprise reported adjusted EPS of $0.44, down from $0.50 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.4%. Over the next 12 months, Wall Street expects Hewlett Packard Enterprise’s full-year EPS of $1.89 to grow 19.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Hewlett Packard Enterprise has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.4% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Hewlett Packard Enterprise’s margin dropped by 4.6 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Hewlett Packard Enterprise’s free cash flow clocked in at $729 million in Q2, equivalent to a 8% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hewlett Packard Enterprise historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Hewlett Packard Enterprise’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Hewlett Packard Enterprise reported $4.57 billion of cash and $23.65 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $5.26 billion of EBITDA over the last 12 months, we view Hewlett Packard Enterprise’s 3.6× net-debt-to-EBITDA ratio as safe. We also see its $247 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Hewlett Packard Enterprise blew past analysts’ revenue expectations this quarter. We were also glad its revenue guidance for next quarter trumped Wall Street’s estimates. On the other hand, its EPS guidance for next quarter slightly missed. Zooming out, we think this was a mixed print. Investors were likely hoping for more, and shares traded down 1.7% to $22.47 immediately following the results.

Updated: November 14, 2025 at 11:25 PM EST

When considering an investment in Hewlett Packard Enterprise, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Hewlett Packard Enterprise has a few positive attributes, but it doesn’t top our wishlist. Although its revenue growth was mediocre over the last five years, its growth over the next 12 months is expected to be higher. And while Hewlett Packard Enterprise’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its scale makes it a trusted partner with negotiating leverage.

Hewlett Packard Enterprise’s P/E ratio based on the next 12 months is 10.1x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $26.73 on the company (compared to the current share price of $22.89).