Hewlett Packard Enterprise's Pivot To As-A-Service Cloud Strategy Is Bearing Fruit

Summary

• HPE's pivot to an aaS-based business model has been a quicker success story than I imagined: Q1 FCF was a record and overall gross margins increased 70 basis points.
• As a result, management had the confidence to raise the midpoint of FY21 EPS guidance by $0.10/share and FCF guidance by $250 million.
• The company is pressing its competitive advantage in SD-WAN and supercomputers could provide an upside surprise this year.
• The stock is currently trading at 9x the midpoint of FY21 non-GAAP EPS guidance and yields 3%.
• If FCF comes in at the midpoint of guidance ($1.25 billion), that would equate to an estimated $0.95/share, easily covering the current $0.48/share annual dividend.

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As I reported in my previous article on Hewlett Packard Enterprise (NYSE:HPE) last October, the company announced yet another restructuring plan which essentially was a pivot away from its dominant revenue source (low-margin commodity based servers) toward an as-a-service ("aaS") customer favored pay-per-usage

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I am an electronics engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for the investment decisions you make.