On Wednesday, Susquehanna maintained a Neutral rating on HP (NYSE:HPQ) Enterprise (NYSE:HPE) but raised the price target to $20 from $14 for the shares. This adjustment reflects a more optimistic valuation of the company's stock, now based on approximately 1.10 to 1.15 times enterprise value to sales (EV/Sales) ratio.
HP Enterprise recently disclosed its second quarter financial results for the fiscal year 2024, which presented a mix of outcomes.
While the company's revenue surpassed analyst expectations, its profit margins did not meet the forecasted figures. The report indicated a stabilization in the traditional server market and a return to regular levels in the company's backlog.
The guidance for the July quarter's midpoint was reported to be higher than both Susquehanna Financial Group's (SFG) and the consensus estimates.
HP Enterprise's order book remains strong, especially in the artificial intelligence (AI) sector, driven by its Cray products. However, the AI servers are experiencing margin pressure.
Despite these positive signs, Susquehanna's analysis suggests that HP Enterprise still faces challenges in its product lineup, lacking key growth-oriented products.
This gap may allow competitors such as NTAP and Dell (NYSE:DELL) to continue gaining market share and consolidating their positions in the AI supply chain.
Susquehanna also introduced its fiscal year 2026 estimates for HP Enterprise. The firm highlighted that the original equipment manufacturer/original design manufacturer (OEM/ODM) business model is under increased margin pressure due to heightened competition and rising bill of materials (BOM) costs associated with AI products. Consequently, the EV/Sales metric has been deemed the most suitable for assessing the company's value.
In other recent news, HP Enterprise (HPE) has been making significant strides in its artificial intelligence (AI) systems segment. The company's revenue in this area surged to approximately $900 million in the second fiscal quarter of 2024, more than doubling from $400 million in the previous quarter.
This robust growth was noted by Wells Fargo (NYSE:WFC), which subsequently raised its price target for HPE shares to $22, up from $19, while maintaining an Equal Weight rating on the stock.
The AI revenue boost was a key driver for HPE's overall strong performance in Q2 2024, with total revenue reaching $7.2 billion, marking a 4% year-over-year increase.
This growth, coupled with a surge in non-GAAP diluted net earnings per share, led the company to raise its full-year revenue and earnings guidance.
The company's focus on AI systems, the adoption of HPE GreenLake, and recovery in traditional infrastructure markets have been pivotal in shaping this positive outlook.
Wells Fargo's updated price target reflects the firm's confidence in HPE's market position and future earnings potential, especially given the recent developments in the AI systems market.
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