Wednesday, August 26, 2020

HPE Pivots and Stock Soars on Q3 Beat

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News shaping
the markets today

     

What’s happening: Shares of Hewlett Packard Enterprise (HPE) spiked more than 6% in extended trading on Tuesday after the enterprise computing company reported its fiscal third-quarter results ahead of market expectations.

What happened: Hewlett Packard Enterprise was forced to sideline its plans for rekindling growth in its major businesses, as companies postponed the purchase of new data center equipment amid the coronavirus crisis and resulting economic downturn.

Despite the challenges, the server maker achieved healthy results in the quarter on the back of strong execution and extensive cost cutting.

What were the changes: Although Hewlett Packard Enterprise reported a decline in sales and earnings, both figures came in better than the consensus views.

  • Revenue contracted by 5% to $6.82 billion, from $7.2 billion in the same quarter last year, but surpassed market expectations of $6.06 billion.
  • Non-GAAP earnings stood at 32 cents per share, down from 45 cents per share in the year-ago quarter. The figure came in meaningfully higher than the consensus projection of 23 cents per share.

Why it matters: For the past two years, CEO Antonio Neri has been trying to position HPE as an edge-to-cloud PaaS (platform-as-a-service) company. However, HPE and other companies selling networking and storage hardware were hit hard by the pandemic, and the focus needed to shift to restoring the supply chain and working through the backlog from the previous quarter.

HPE said it was able to reduce its order backlog by more than $500 million in the fiscal third quarter. Management has also been making significant efforts to keep the company afloat through the crisis by cutting costs. In May, HPE had announced plans to achieving $1 billion in savings by the end of fiscal 2022 by trimming jobs and taking other initiatives.

Revenue from HPE’s storage hardware business declined 10% to $1.1 billion in the quarter, while server sales were mostly flat at $3.4 billion.

Management projected adjusted profits between 32 and 36 cents per share for the fiscal fourth quarter, versus market expectations of 32 cents per share. For the full fiscal year, the company expects to earn between $1.30 and $1.34 per share, which also beat the Street outlook of $1.20 per share.

How shares responded: Hewlett Packard Enterprise shares jumped 6.1% to $9.90 in after-hours trading, following a 3% decline during the regular session. The stock has lost more than 3% in the past month.

What to watch: Investors will monitor the company’s progress in the current quarter, after the third-quarter beat. The decline in coronavirus cases is also likely to help HPE recover from the impact of the pandemic-led crisis.

The Markets Today

     

US stocks will be in focus today, ahead of durable goods orders report scheduled for release later in the day.

Context: US stocks trended higher on Tuesday, with the S&P 500 and Nasdaq 100 recording new highs.

Details: Market enthusiasm took a hit earlier in the session after data showed a steep decline in US consumer confidence in August. As the day progressed, investors focused on strong recovery prospects of various companies, which lifted the major indices to new record highs.

The US Conference Board announced a decline in consumer confidence to 84.8 in August, versus a revised reading of 91.7 for July. Economists, on the other hand, were expecting a reading of 93.0.

Sentiment was supported by US and China officials reaffirming their commitment to the previously signed trade agreement.

In other economic reports, home prices in the US continued to improve, with the S&P CoreLogic Case-Shiller price index rising 3.5% year-over-year in June.

Meanwhile, a major reshuffle of the Dow Jones index will take place at the end of August, which will see Salesforce.com, Amgen Inc. and Honeywell International joining the 30-stock index on August 31.

Shares of Palo Alto Networks Inc. declined by over 2% despite the company reporting better-than-expected quarterly results. Shares of Children’s Place Inc. nosedived by around 19% after the apparel retailer posted a higher-than-expected loss for the second quarter.

The S&P 500 index gained 0.4% to close at 3,443.62 on Tuesday, notching its 17th record finish for the year. The Nasdaq 100 also logged its 38th record close for the year, adding 86.75 points to settle at 11,466.47.

Meanwhile, the Dow Jones index slipped 0.2% to settle at 28,248.44 following a decline in the shares of Apple and Boeing.

What to watch: Investors await data on durable goods orders. Analysts expect durable goods orders to rise 4.3% in July, versus a 7.3% increase in June.

Markets will continue to monitor the Covid-19 numbers, with total cases surging past 5.7 million in the US.

Other Markets: European indices were trading higher at 8:30am GMT, with the STOXX Europe 600, French 40 and Dax 30 index up by 0.2%, 0.1% and 0.3%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s initial jobless claims, Mexico’s GDP growth rate and index of economic activity as well as the US MBA mortgage applications and EIA’s crude oil stockpiles.