Mackenzie Tatananni

Hewlett Packard Enterprise faces a long, grueling road to recovery, analysts argued after the technology company reported a mixed first-quarter report, and issued guidance that sharply missed expectations.

Susquehanna analysts cut their price target on HPE stock to $15 from $20, and maintained a Neutral rating, pointing to the platform-as-a-service company's "poor execution," and lack of product diversification.

The company's fiscal first-quarter earnings miss was the result of "unexpected pricing pressure due to aggressive discounting on traditional servers" that pushed the operating margin below Susquehanna's expectations, the analysts wrote. In their view, HPE continues to face margin pressure, which is reflected in declining server operating margins despite high-single-digit revenue growth from the prior year.

Evercore ISI analysts cut their price target to $17 from $22, and maintained an In Line rating on the stock. They attributed HPE's most significant headwinds to "a host of challenges on the compute side (artificial-intelligence servers)," which will be tempered by cost-reduction plans and revenue recovery in the second half of the current fiscal year. However, patience is needed, the analysts wrote.

Barclays analysts also cut their price target, to $20 from $27, arguing that HPE's gross margin miss of 2oo base points was "concerning, particularly when execution in traditional servers is partially to blame." Barclays maintains an Overweight rating HPE stock.

"We see HPE showing up in more of the cloud AI competitive bids, where their liquid-cooling expertise may be helping," the analysts wrote. "Over time we need to see a greater mix of sovereign and enterprise, where margins could be better and services and storage attach should be higher."

Shares of HPE cratered 15% to $15.26 on Friday, on pace for the largest same-day percent decrease since March 16, 2020, according to Dow Jones Market Data, amid the Covid-19 pandemic.

Shares of HPE rivals were mixed in Friday trading. Dell Technologies and Cisco Systems were down 2.3% and 0.5%, respectively, while IBM was up 1.3%.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com.

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March 07, 2025 11:17 ET (16:17 GMT)

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