A Look at Hewlett-Packard’s Fundamental Analysis



Parsing the EBITDA figures

Hewlett Packard Enterprise’s (HPE) EBITDA[1. earnings before interest, tax, depreciation, and amortization] margin for last year was 15%, yielding EBITDA of ~$7.1 billion, which was down 34% from the prior year. For the current year, Wall Street expects the company’s EBITDA to reach ~$6.2 billion, implying that this year’s EBITDA is expected to rise 9%.

EV-to-adjusted-EBITDA[2. enterprise value to earnings before interest, tax, depreciation, and amortization] for this year for HPE is expected to be ~5.6x. For 2018, its EV-to-adjusted-EBITDA is modeled at ~6.0x. HPE stock is trading at a price-to-EBITDA multiple of ~4.2x.

HPE’s peers Apple (AAPL), Nokia (NOK), Fitbit (FIT), and Cisco Systems (CSCO) are trading at price-to-EBITDA multiples of 11.5x, 30.9x, -7.1x, and 10.4x, respectively.

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Can HPE meet its EPS and sales targets?

Hewlett Packard Enterprise (HPE) reported EPS (earnings per share) of $1.47 and revenues of ~$35.8 billion in 2016. It posted EPS of $1.84 on total sales of ~$48.8 billion last year. This year’s sales are forecast to decrease 6%. Sales for next year are projected to be ~$29.7 billion.

HPE’s credit rating

Moody’s rating on HPE’s debt is Baa2. The company also has a Standard & Poor’s debt rating and debt outlook of BBB and “stable,” respectively.

To understand these ratings, the highest possible credit rating scores from Moody’s and Standard & Poor’s are Aaa and AAA, respectively. These ratings signal that a stock or bond has investment-grade qualities because the company issuing them has a low chance of defaulting on its debt obligations.


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