Hewlett Packard Enterprises (HPE) management is confident the stock will continue to perform in 2019.
The offspring of the Hewlett Packard has made a long rebound in the last two years, coming up significantly from the lows felt shortly after the company split off from HP Inc. (HPQ) .
Shares of the Palo Alto, California-based company have tapered off, along with the overall tech market, in the second half of 2018 despite strong earnings.
To get a feel for how the company will get the market back on its side heading into 2019, Real Money spoke with the newest member of the company's newly formed executive suite, CFO Tarek Robbiati.
Macro Movements
The tech sector has been hit hard as of late as concerns over the macro situation of memory pricing, foreign exchange rates, and supply gluts have weighed on the market.
The trend has certainly hit HPE, as shares have declined by double digits since summer. However, the demand for HPE's products is not declining by any stretch, according to Robbiati.
"The macro environment right now is not bad," he said. "From the customer demand side, there is no reason to assume momentum would slow heading into 2019."
Morgan Stanley analyst Katy Huberty picked up on the "stronger for longer" enterprise IT demand overall in her take on the company's earnings release on Tuesday evening.
"We see modest upside to consensus EPS and multiple expansion on the back of sustained strong enterprise IT demand, improving execution, and execution of HPE Next cost savings," she said.
Huberty prescribed an "Overweight" rating and a $21 price target for the stock, based on its ability to continue to deliver into 2019.
Aruba Accelerates Growth
Robbiati explained that the company expects a particularly strong carry through for momentum in the company's Wi-Fi hardware and software business, Aruba.
"Aruba has been a very sizable business for us," Robbiati said. "We've moved the Aruba story beyond just the campus to the intelligent edge where IT is really developing, expanding into IoT."
Aruba revenue, separated between wireless access and switching, grew by 16% year over year, bearing fruit of the company's significant investments into the Intelligent Edge segment that the subsidiary resides.
That said, both analysts and Robbiati acknowledged the competitive landscape in play, especially at the company's high network and cloud businesses that Aruba works within.
"The competition is intense," Robbiati said. "We don't deny that."
Still, analysts believe that HPE is better positioned than its legacy peers.
"Despite headwinds from non-operational factors such as FX and a higher tax rate, the stronger operating performance and margin expansion drives 2019 EPS to $1.68," Huberty wrote. "We assume a 15x multiple on 2019 EPS, which is the low end of legacy data center peers like Cisco (CSCO) and NetApp (NTAP) , driving our bull case valuation of $25."
Cashing in on Cloud
Robbiati told Real Money that the company would be able to outpace its competition in cloud as well, based on right-sizing its offerings with entities such as Greenlake.
"The future is intelligent cloud," he said. "The needs of a retailer are quite different from an aeronautical company for example. We are able to tailor to businesses to solve that."
The pay-as-you go method, coupled with the security offered as a hybrid cloud provider, was highlighted by Robbiati as the key to the "just right" market fit the company is aiming for.
To be sure, public cloud adoption could become a significant problem as it would eat into the business model for the hybrid cloud infrastructure the company provides, while also destroying legacy storage business that so far has been the lifeblood fueling the company's ability to invest in hyperconverged infrastructure and cloud solutions.
Further, the tech leader's eschewing of product provision to hyperscale cloud providers has created a degree of suspicion on growth prospects moving forward among the investment community should those companies accelerate.
Robbiati quickly quelled these concerns, considering them to be "empty calories", noting that there are no plans to reignite the services to these companies based on their lack of profitability.
Acquisition Action
In terms of moving beyond its legacy businesses, the company has sped up its growth prospects by acquiring companies it can add to its diversifying stack of enterprise solutions.
Acquisitions have been a big part of the tech industry as of late, highlighted by IBM's (IBM) $34 billion splash for Red Hat (RHT) in a major move towards cloud.
HPE has been no stranger to acquisitions, using them as a method to speed the company's comeback from its post-separation lows.
"Our view on acquisitions is that they are important for accelerating growth," Robbiati said. "The latest one, Bluedata, is certainly helping do just that."
Robbiati declined to identify specific targets after Bluedata, but analysts have their suspicions.
Gabelli analyst Hendi Susanto suggested that Arista Networks could make a reasonable acquisition target should the company embark on a spending spree.
"Usually we do not talk about specific acquisitions targets, but I have written that Arista Networks (ANET) makes sense," he told Real Money.
Susanto explained that the company would act as a solid building block for further growth in networking platform for HPE.
The acquisition cost would certainly be significant, given the company's current $17 billion market cap.
Robbiatti was noncommittal on such a large acquisition.
"Will we do a large acquisition? It depends," he said. "We have a strong balance sheet, but we do not want to overreach."
In terms of overall strategy, in application to both the company's acquisition strategy and overall business plan, Robbiati summed it up tersely.
"We are still perceived as just a hardware company and that's not true," he said. "We're not just a plain vanilla company."
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