Hewlett Packard Enterprise (HPE)

Enterprise technology company Hewlett Packard Enterprise (NYSE:HPE) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 5.9% year on year to $7.63 billion. Guidance for next quarter’s revenue was optimistic at $8.35 billion at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $0.38 per share was 16.3% 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 sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $31.65 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 sluggish 2.9% compounded annual growth rate over the last five years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Hewlett Packard Enterprise’s annualized revenue growth of 3.4% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Hewlett Packard Enterprise reported year-on-year revenue growth of 5.9%, and its $7.63 billion of revenue exceeded Wall Street’s estimates by 2.3%. Company management is currently guiding for a 8.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, an improvement versus the last two years. This projection is above the sector average and implies its newer products and services will fuel better top-line performance.

Hewlett Packard Enterprise was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.9% was weak for a business services business.

Analyzing the trend in its profitability, Hewlett Packard Enterprise’s operating margin might fluctuated slightly but has generally stayed the same 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.

In Q1, Hewlett Packard Enterprise generated an operating margin profit margin of negative 14.5%, down 20.4 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 EPS grew at an unimpressive 4% compounded annual growth rate over the last five years. This performance was better than its flat revenue, but we take it with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q1, Hewlett Packard Enterprise reported EPS at $0.38, down from $0.42 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Hewlett Packard Enterprise’s full-year EPS of $1.95 to stay about the same.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

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 6.7% 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 6.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Hewlett Packard Enterprise burned through $1.01 billion of cash in Q1, equivalent to a negative 13.2% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

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 2.8%, 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 $11.67 billion of cash and $17.53 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 $3.93 billion of EBITDA over the last 12 months, we view Hewlett Packard Enterprise’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $152 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’ EPS expectations this quarter. We were also glad its quarterly revenue guidance and full-year EPS forecast quarter exceeded Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 3.3% to $18.25 immediately after reporting.

Updated: June 14, 2025 at 11:46 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Hewlett Packard Enterprise, you should also grasp the company’s longer-term business quality and valuation.

Hewlett Packard Enterprise falls short of our quality standards. To kick things off, its revenue growth was uninspiring over the last five years. And while its scale makes it a trusted partner with negotiating leverage, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its projected EPS for the next year is lacking.

Hewlett Packard Enterprise’s P/E ratio based on the next 12 months is 9.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $21.12 on the company (compared to the current share price of $17.69).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.