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What's Pushing Hewlett-Packard Enterprise Shares Higher?

Shares of Hewlett-Packard Enterprise Company HPE have gained solid momentum of late. One of the major reasons behind this could be the company’s better-than-expected first-quarter fiscal 2016 results. Yesterday’s closing price of $17.74 reflects a 34% increase in the company’s share price since the earnings announcement.

Hewlett-Packard Enterprise posted first-quarter results on Mar 1, post the split from Hewlett-Packard Company. Both revenues and earnings of the company surpassed the Zacks Consensus Estimate. However, the company witnessed year-over-year decline in the top line and bottom line. In our view, the deterioration mainly stemmed from the strengthening U.S. dollar and the ongoing weakness in Chinese and Brazilian economies.

Nonetheless, it should be noted that the company registered a year-over-year revenue growth of 4% on a constant currency basis. Moreover, Hewlett-Packard Enterprise issued strong earnings guidance for fiscal 2016.

We believe that the parent company’s (Hewlett-Packard Company) initiative to split the business has already started benefiting Hewlett-Packard Enterprise. In our opinion, the split allows a customized approach to two different businesses, which might not have been possible as a single entity.

Notably, in Oct 2014, Hewlett-Packard announced that it will split its enterprise-facing hardware and service business, and the consumer-facing computer and printer segments, into two publicly trading companies.

Thereafter, the company successfully split itself into two standalone companies — HP Inc. HPQ and Hewlett-Packard Enterprise — effective Nov 1, 2015. Post split, Hewlett-Packard Company’s PC and printer business now operate under the name HP Inc., while Hewlett-Packard Enterprise offers commercial tech products.

Hewlett-Packard has done considerably well in the enterprise class server and storage markets. The company is focusing on the high-margin software and security markets as well. We believe that the company’s traction in the cloud, security and Big Data segments will drive growth going forward.

Furthermore, Hewlett-Packard Enterprise’s strategic acquisitions and value addition for shareholders in the form of dividends and buybacks are other positives.

However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines IBM and Oracle ORCL add to the woes.

Currently, Hewlett-Packard Enterprise holds a Zacks Rank #2 (Buy).

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