Hewlett Packard earnings pressured by weakness in networking division
Earnings from Hewlett Packard this week may well show that its key networking division is struggling to meet targets.
Hewlett Packard earnings pressured by weakness in networking division
Earnings from Hewlett Packard this week may well show that its key networking division is struggling to meet targets.
Hewlett Packard Enterprise (HPE) could see its 2024 earnings per share (EPS) targets at risk due to growing demand challenges in its important Intelligent Edge division, focused on campus networking and Wi-Fi solutions. With major peers like Cisco reporting sharp declines in enterprise networking spends, HPE's Intelligent Edge results may similarly disappoint despite its efforts in AI and hybrid cloud.
HPE is expected to report adjusted EPS of 44.3 cents, on revenue of $7.1 billion.
Recent outlook cuts by networking giants Cisco and Extreme Networks revealed rapidly deteriorating conditions in campus switching and wireless LAN, two core areas for HPE's Intelligent Edge. Cisco's networking revenue is poised to drop 19% by our estimates, reflecting broad-based weakness as enterprise customers pull back on network infrastructure investments.
Yet consensus forecasts call for only a 2% revenue decline in HPE's Intelligent Edge segment, signalling expectations seem disconnected from the realities of the end-market. This divergence indicates potential for sizable estimate cuts if HPE's networking business experiences dynamics similar to peers.
With Intelligent Edge contributing around 37% of HPE's total operating profit in fiscal 2023, pronounced weakness in the division could have an outsized impact on overall earnings. That may overshadow positive signs like HPE's AI momentum and a demand recovery in its compute and storage segments.
To meet 2024 guidance for EPS of $1.96-$2.04, HPE likely requires Intelligent Edge sales to hold up better than competitors. But end-market conditions appear quite challenging, with campus network refresh cycles slowing amid macro uncertainty.
As HPE reports quarterly results, analysts will focus closely on management's Intelligent Edge outlook and commentary on enterprise networking spending. Any significant trimming of their segment forecasts or walking back of the 2024 EPS target could pressure HPE's stock despite its multi-year transformation efforts.
Navigating the headwinds in Intelligent Edge and the broader economic landscape will test HPE this year. With networking solutions so integral to its profit mix, weakening demand would represent a stiff earnings headwind that bullish AI and hybrid cloud trends may fail to fully offset.
When are Hewlett Packard’s results expected and what are the expectations?
HP is set to release its first quarter (Q1) 2024 results on 29 February 2024. The results are for the fiscal quarter ending December 2023.
What is ‘The Street’s’ expectation for the Q1 2024 results?
Wall Street’s expectations for the upcoming results are as follows:
Revenue of $10.842 billion : -8.92% year on year (YoY)
Earnings per share: $0.688 (-28.3% YoY)
How to trade HP’s results?
Refinitiv data shows a consensus analyst rating of ‘hold’ for HP – 1 strong buy, 3 buy and 11 hold - with the median of estimates suggesting a long-term price target of $18.04 for the share, around 19% higher than the current price (as of 26 February 2024).
IG sentiment data shows that 90% of clients with open positions on the share (as of 26 February 2024) expect the price to rise over the near term, while 10% of clients expect the price to fall.
72% of clients sold the share this month.
HP share price – technical view
HP’s share price, which has fallen by over 10% year-to-date, continues its descent towards the 200-week simple moving average (SMA) at $14.39. Together with the March-to-May lows at $13.79 to $13.66 it should offer good support, were it to be reached at all.
HP Weekly Chart
Were the at $13.79 to $13.66 support zone to give way, though, the September 2022 trough at $11.93 would be back in sight.
HP Daily Chart
Short-term the HP share price seems to be holding above its January and last week’s lows at $14.76 to $14.70. As long as this remains the case, a gradual advance back towards the mid-February high and breached uptrend line at $15.75 to $15.86 may ensue. This resistance area would need to bettered for the late January high and the 200-day SMA at $16.04 to $16.32 to be reached. These levels need to be exceeded for a medium-term bottom to be formed.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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