The future of Hewlett Packard Enterprise (HPE) and the extent to which it can grow shareholder value in the years ahead is not as clear as investors would like.
The tech giant, which is in the midst of its HPE Next initiative, is set to report fourth quarter fiscal 2018 results after the closing bell Tuesday. On the one hand, the company has beaten Wall Street’s consensus earnings estimates in five of the previous six quarters, which is pretty impressive. On the other hand, however, the numbers themselves have been less-than stellar. During that span, HPE’s revenue growth has come by an average decline of double digits.
The management has focused on improving the company’s competitive prospects by focusing on certain strategic growth areas. Aside from its Next initiatives, the company wants to streamline operations and cut costs. But HPE stock has not reflected the company’s improvement. The shares have disappointed investors, falling some 10% over the past six months.
To reverse this trend, the company on Tuesday must produce not only better revenue growth numbers for this quarter, HPE must also issue guidance that suggests its Cloud market share can grow amid the dominance of Amazon (AMZN), Microsoft (MSFT) and Salesforce (CRM). Last but certainly not least, the company must produce better operating margin numbers to suggest it can deliver long-term shareholder value.
In the three months that ended October, analysts expects the Palo Alto, Calif.-based tech giant to earn 43 cents per share on revenue of $7.84 billion. This compares to the year-ago quarter when earnings came to 31 cents per share on revenue of $7.66 billion. For the full year, earnings are projected to rise 8.5% year over year to $1.53 per share, while full-year revenue of $30.73 billion would decline 11.5% year over year.
The projected year-over-year revenue decline for the quarter and full year has become too common. There is also concern of adverse impact not only on server demand, but also on memory pricing for fiscal 2019. If that were not bad enough, there is now reports that Amazon may look to leverage is Amazon Web Services success by entering the data center, adding more pressure onto HPE and other on-premises tech companies like Cisco (CSCO) and Dell.
It’s not yet know the extent of Amazon’s data center capabilities or the impact this could have on HPE, but it does add an extra layer of uncertainty to HPE’s turnaround capabilities and its growth drivers for fiscal 2019. On Tuesday HPE management will be asked about this possible threat, among other topics such as the company’s spending. More specifically, when will HPE move from spending cuts to spending for growth?
While the company expects to return some $3 billion to shareholders in fiscal 2019 via buybacks and dividends, answers to the questions above will nonetheless help investors who perceive HPE stock as a value play to decide whether it is worth the time.