Hewlett Packard Enterprise (HPE) is facing intensifying competitive pricing and additional cost headwinds from tariffs, leading to a reset in its fiscal 2025 margin outlook, analysts at BofA Securities said in a research note on Friday.

The company reported fiscal Q1 earnings of $0.49 per share, narrowly missing the $0.50 consensus estimate, while revenue of $7.85 billion surpassed expectations. However, BofA sees the bigger concern in the company's weaker-than-expected full-year guidance, which reflects a $400 million EBIT shortfall driven by competitive pricing pressures, costs tied to the AI GPU transition, and tariffs.

Despite 7.5% projected revenue growth in fiscal 2025, the company's newly announced $350 million cost-cutting initiative signals a tougher pricing environment in traditional and AI servers, according to the note.

Hewlett Packard Enterprise also guided its fiscal 2025 operating margin to about 9% at the midpoint, well below BofA's 11% estimate and the Street's 10.7% estimate, reflecting the impact of competitive pricing, AI GPU transition costs, and tariffs.

As part of its cost-cutting plan, Hewlett Packard Enterprise said it will cut 2,500 jobs over the next 12 to 18 months. The company estimates a $250 million cash charge in 2025 and another $100 million in 2026, targeting $350 million in annual run-rate savings by 2027.

Meanwhile, the company issued weaker-than-expected fiscal Q2 guidance, forecasting adjusted EPS of $0.28 to $0.34, below FactSet's consensus estimate of $0.38, citing uncertainty around US tariff policy.

Despite near-term challenges, BofA sees potential upside if Hewlett Packard Enterprise completes its $14 billion acquisition of Juniper Networks (JNPR), a deal currently under DOJ scrutiny.

If approved, the cost synergies could reach $800 million, potentially adding $0.60 per share in earnings over time. Given the uncertainty around the Juniper deal and near-term margin pressures, BofA adjusted its valuation methodology, now applying a 9x multiple to 2026 earnings of $2.10, down from 10x previously.

BofA reiterated its buy rating on Hewlett Packard Enterprise but lowered its price target to $20 from $26, citing valuation, expected cost savings, and long-term AI server growth as key reasons to remain positive.

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