HPE Earnings: Networking Shines and Margin Strength Offsets Weak Server Demand; Maintain $16 FVE

We maintain our $16 per share fair value estimate for Hewlett Packard Enterprise after it reported mixed, but solid fiscal second-quarter results. HPE’s sales missed our expectations and it lowered its full fiscal year sales guidance, but earnings met our expectations and it raised its bottom line guide for the full year. The firm’s networking business continues to buoy results throughout the income statement, while the server and storage businesses are acting as anchors on growth. We think an 8% drop afterhours is an overreaction to demand headwinds, particularly in servers, that we see as transient and cyclical. Nevertheless, we would recommend investors wait for a greater margin of safety to buy shares of no-moat HPE.