Hewlett-Packard Enterprises (HPE)

NYSE: $23.37

Company Background:

● HPE, a $36B Mkt Cap information technology company, provides technology solutions to business and public sector enterprises.

● Split from Hewlett-Packard (the other being HP Inc.) in late 2015. ● HPE’s stock price has seen it’s stock price rise over 68% since the spin off late

last year. This proves the market’s acceptance for the split. ● HPE has completed several spin-offs in 2016 as it transforms into a

cloud-computing focused company.

Stock Performance YTD:

What does HPE do?

HPE is in the Acceleration Business

They help customers use technology to slash the time it takes to

turn ideas into value through a package of solutions and services:

Cloud Security Data Integration/ Collaboration

Cloud Solutions:

Transforms to a Hybrid Infrastructure:

● This service allows businesses to integrate workloads, automate tasks, and

work seamlessly across traditional IT and cloud environments

● Cloud Services, Cloud Software, and Integrated systems

⇒ Companies can deliver services quickly, it reduces their costs and improves

cloud storage capabilities.

Security Solutions:

Protects Digital Enterprise

● This service allows companies to continue innovating in a secure

environment

● Services (IT specialists) , Software, and Hardware

⇒ Protects companies from the growing Cyber risks

Data Solutions:

Empowers the Data-driven Organization

● Allows companies to find relevant insights in large amounts of data, and

deliver them to the right people at the right time

● Big Data Software, Hardware and Support Services

⇒ Improve customer experiences, reduce costs and boost innovation.

Integration and Collaboration Solutions:

Enables Workplace Productivity

● Allows for seamless digital experiences – wherever, whenever

● Connectivity Infrastructure, Software and Apps, Expertise consultants

⇒ Customers and employees have instant access to information, tools and

support and can collaborate

HPE Services:

HPE provides consultation services to help companies optimally implement their solutions

Advises, Transforms, and Manages by Leveraging its expertise to optimize customer’s cloud, security, mobility and big data transformations.

Financing and Flexible Capacity to keep customer’s IT innovative and efficient as business needs change.

HPE Services Cont:

IT Support Services provides companies with the precise support they need - from a single HPE product to large, multi-vendor data centers and complete hybrid cloud solutions.

Education and Training Services gives employees the skills they need to boost productivity and take maximum advantage of new technology investments.

HPE Product Portfolio:

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Industry Trends: 1. Seamless integration and communication between products and platforms.

● HPE provides collaboration and integration services

2. Big Data Analytics

● HPE has products and services to help companies effectively use their data

● HPE is acquiring SGI a leader in big data analytics

3. High Performance Computing (HPC) (the ability to improve quality of life by speeding up businesses and

everyday life)

● HPE leader in the industry

● HPE’s new Quantitative Finance Library (QFL) solution lets quants devote more of their attention

to improving algorithms and less to learning the idiosyncrasies of these new processor

architectures, allowing them to become more productive and efficient.

Industry Trends Cont:

4. Internet of Things (IoT- a system of interrelated computing devices, mechanical & digital

machines)

● HPE provides a package of services that allows companies to have all their systems

connected

5. Privacy and Security solutions in the adoption of new technologies

● HPE provides security services to protect companies from cyber risks

6. Partnering strategies allow technology companies to grow by providing more opportunity for

development of new business models, top-line acceleration, and faster adoption of offerings in

the marketplace

● HPE is partnering with Microsoft (next slide)

Key Catalysts

● Partnership with Microsoft: ○ This allows for licensing of the Windows software and name to pioneer the creation

of a Windows-supported HP smartphone

● HP acquires SGI, a leader in high-growth Big Data analytics and High-Performance computing. ○ Strengthens position in the 11.1B HPC industry - projected 6-8% compound annual

growth rate (CAGR)○ Data Analytics - projected 15% CAGR ○ Expands HP into gov, research and life sciences

Growth Opportunities

● HP is an industry leader in Deep Learning, a projected market of 1.77B by 2022 with 65.3% CAGR

● Eventually, HP will create a foothold in the cellphone market as a flagship firm responsible for the design, creation and distribution of the generation of Windows phones

● HP has demonstrated POC on a revolutionary memory-based data analysis that has potential to revolutionize big data analysis with newfound efficiency and speed

Macroeconomic Trends

● Proposed increases in the federal interest rates

○ Cyclical sectors like IT do well during rate hikes

● Strong M&A opportunities in the current economic climate

○ HPE acquiring SGI

HPE DCF:

DCF Cont.

Share Price based on DCF:

⇒ Implied share price shows a 23.53% upside

HPE Competitors:

Numbers in Billions

→ HPE net income relative to its competitors (based on market cap) shows that it is one of the strongest.

HPE Competitors Cont.

1. Their P/E ratio is significantly lower than industry reflecting that HPE is UNDERVALUED

2. Strong forward P/E ratios reflects that they are at forefront of growth

3. Company’s ROC is in the top 3%, and much higher than its competitors.

4. The company’s P/B AND P/S come in with solid numbers.

HPE and Competitor Stock Performance YTD:

HPE outperformed all its competitors (blue line)

Risks:

● Competition○ There is a rise in startups that are providing similar services

● Tech company volatility○ Unending need to drive innovation forward through proper

research and development

Risks

● HPE delivered a 11.5% ROE over the past year

○ Low compared to the industry average, which stood at 25.7% in the same time

period.

● With many of these spin-offs comes uncertainty regarding HPE’s future.

○ Specifically, whether it will create a more fine-tuned cloud-computing business or

not.

One year horizon:

Price Target: $ 28.37

Potential Upside: 23.53%

Potential Downside: -13.14%

Investment Thesis:

HPE successfully spun off from its parent company, HP Inc., in 2015 and has since become a leader in the informational technology industry. It is at the forefront of innovation and provides products and services to allow for seamless integration, high performance computing (HPC), big data analytics, security & privacy. Moreover, it has partnered with Microsoft to develop a Windows-supported HP smartphone, and it has acquired SGI to further improve its data services. Relative to its industry it is undervalued (lower P/E ratio), and has outperformed its immediate competitors YTD. Finally, our DCF model indicates that its implied share price is significantly higher than its current price, making it a BUY NOW.