Is There Any Intelligent Life Down There Mr. Spock? HP Enterprise - HPE??
I did a screen for interest coverage > 10x, Price/Book < 1.5x, mkt. cap > $10 billion, and I got only:
Coterra Energy - CTRA (the combination of Cabot Oil and Cimarex), I will look at these guys and Diamondback - FANG in the near future
General Motors - GM - This must be some kind of data error, because GM must be more leveraged
Hewlett Packard Enterprise - HPE
Let’s first review some history on HP:
In the 1970s, an HP engineer named Steve Wozniak tried repeatedly to get HP to build a personal computer, they refused, and Wozniak then co-founded Apple with Steve Jobs
In 1999 HP spun off the lab equipment business into Agilent - A, which now trades at 25x, to confuse matters Agilent spun out Keysight - KEYS in 2014, also selling at 25x
In 2002 HP acquired Compaq
In 2015 HP divided into HPQ (Compaq and the printer business) and HPE (which includes the ghosts of Digital Equipment, Electronic Data Systems, Tandem, and Cray)
At best, HPE is a cheap stock with some AI technology, selling for 10x earnings, 1.1x EV/sales, and 1.1x book.
At worst HPE is a graveyard for old technology that faces a bleak future, and is most likely TGTBT and a classic “value trap”.
Right now I lean toward value trap, but I do see some small signs of intelligent life, so HPE deserves to be on the monitor list.
Here are my main negatives:
HPE will close later this year on the acquisition of Juniper Networks. The debt required is significant, but manageable. There is some chance that Super Lina will stop the deal.
A large stock buyback was a better idea than buying Juniper
HPE’s CEO is a 25 year HP veteran that does not seem to have many creative ideas
When a tech CEO tries to to sell you on the profitability of service contracts, it has historically been time to run for the door, very quickly
When asked about recent new clients, the CEO cited only the University of Bristol. That is not really exciting.
Maybe HP has some advantages in health care, governments, and universities. I do not want to think about what HP calls “sovereign AI” really means.
HP actually has an AI product for small users called “AI the Box”, I am going to stick with Jack in the Box.
There are some positives:
HP is a leader in technology to cool AI servers
HP has some networking capabilities that might add value
HP might have some chance with very large users because of it Cray related technology
HP has done well with some of its recent acquisitions, i.e. Aruba
A new CFO, but coming from HPQ, again an insider
HPE is not completely hopeless. Expectations are fairly low. They seem committed to the dividend (yield = 2.7%). If I saw a new management that was “kicking ass and taking names”, I might get excited. Right now there is a strong smell of bureaucracy.