A general view of the offices of the Hewlett Packard Enterprise Company in Minneapolis, Minnesota, on January 3., 2024.
Aaronp | Bauer-Gangin | GC pictures | Getty pictures
Company: Hewlett Packard Enterprise (HPE)
Business: Hewlett Packard Enterprise is a global company from Edge-to-Cloud. It provides open and intelligent technology solutions as a service. The company offers cloud services, computers, high -performance computing and artificial intelligence, intelligent edges, software and memory. The segments include server, hybrid cloud, intelligent edge, financial services, company investments and others. The server segment range consists of general server for multi-work load computers, workload-optimized servers and integrated systems. Its hybrid cloud segment offers a number of cloud native and hybrid solutions for memory, private cloud and infrastructure software-a-service room. Its intelligent edge segment offers wireless and wireless local networks, campus, branch and data center circuits as well as others. The financial services segment offers flexible investment solutions such as leasing, financing, IT consumption, supply programs and asset management services.
Market value: USD 19.88 billion ($ 15.14 per share)
Stock Diagram -iconstock -Igram -Symbol
Hewlett Packard Enterprise shares in the past 12 months
Activist: Elliott Investment Management
Property: ~ 7.4%
Average costs: n/a
Activist comment: Elliott is a very successful and clever activist investor. The company of the company includes analysts of leading technical equity companies, engineers, company partners -former technology CEO and COOS. When evaluating an investment, Elliott also stops special and general management consultants, expert cost analysts and industry specialists. The company often observes companies many years before investing and has an extensive stable of impressive board candidates. Elliott has concentrated on strategic activism in the technology sector in the past and was very successful with this strategy. However, its activism group has grown in recent years, and the company has carried out much more governance -oriented activism and creates value from a much greater width of companies.
What happens
Behind the scenes
Hewlett Packard Enterprise (HPE) is a global company from Edge-to-Cloud that delivers open and intelligent technology solutions as a service. The company was switched off by HP INC in 2015. HPQ, the Remeco, maintained the PC, desktop and printer companies, while HPE, Spinco, focused on servers, storage and networking. The majority of the sales of HPE (53.8%) come from its server segment, which consists of general servers for multi-work load computing, workload-optimized servers and integrated systems. The hybrid cloud segment (17.88%) offers a number of cloud native and hybrid solutions in the area of memory, private cloud and infrastructure software-a-service room. The intelligent canteen (15.04%) offers wireless and wireless local networks. The rest of the income from HPE comes from its financial services, investments and other activities. This comprehensive product portfolio distinguishes HPE from peers such as Dell or Cisco, which usually lacks one or more of these pieces. Despite this unique marketing position, the company is still undervalued to colleagues. HPE is currently dealing with interest, depreciation and amortization with less than 5 times profits compared to its closest server peer-dell with over 7 times EBITDA, which reflects a 30% discount.
The main driver of the undervaluation of HPE seems to be a poor execution and a loss of credibility in the market. In the first quarter, HPE reported a decline in net sales in its core server sales. The company attributed this loss to the misalignment of servers compared to the existing costs, which remained unnoticed until late in the quarter. As a result, the stock sold strongly in the days after winning the company. In the meantime, Dell reported on sales and margin for the same quarter. However, this is not an isolated incident, but the latest in a history of underperformance. Since Dell resumed trade in the NYSE at the end of 2018, HPE's returns have exceeded over 200%.
While his server business is the core business for HPE, the chances here are about the network business. This is a higher multiple business that Dell does not have. HPE's intelligent business business is a third of the company's profits, and colleagues like Cisco Trade on 12 times EBITDA. If intelligent edge had traded this multiple, it would be worth almost the entire company value of HPE today. This has a significant value from the company's core business and its cloud storage business of the company, even if these companies are still traded with 5 times EBITDA. This value increases significantly with a better execution and efficiency of management, which should lead these companies into the trade with several Dell in the retailers of several Dell trades. While HPE's distinction feature is the high multiple-networking business, Dell's primary distinction feature is a PC and desktop business with a low multiple. Therefore, a case can be done that the analogue company from HPE should act several times several times than Dell.
There is also great uncertainty that hangs on HPE – the pending takeover of Juniper Networks, a networking -peer to HPE and Cisco. The 14 -billion dollar -deal originally announced in January 2024 was stalled. At the beginning of this year, the Ministry of Justice sued to block the acquisition and said it would eliminate the competition. This uncertainty brings HPE to a crucial turning point, which naturally does not like itself – especially if management lacks a success story of the experienced execution. The potential complications here are clear: If the deal is blocked, HPE would have over 25% of its market capitalization in net money, which prevents consideration that management may pursue a rushed and risky acquisition in order to compensate for this failed transaction. If the deal has returned due to the recent HPE failure through the recent execution of HPE, investors can deal with whether the company will be able to effectively integrate a Juniper size business. Although the acquisition of Juniper would significantly improve HPE's profitability mix to almost 50%, which are due to the higher multiple-networking business, many market participants may consider this as loss loss. But with the right supervision, it should be a win-win situation.
This is where Elliott comes into play as a potential value creator for HPE. In view of a sufficient representation of the shareholders on the board, which restores the trust that the company is strongly tailored to the shareholder value, the uncertainty of Juniper could become a great opportunity for the shareholders, regardless of whether it is closing or not. If the deal is blocked and there is a strong representation of the shareholders on the board, the shareholders are confident that the large net bar money position will be used carefully, be it through a hardworking and disciplined acquisition or to buy stocks back in these depressive values. When the deal closes, shareholders are more trust in the fact that a refreshing board does a better job to integrate Juniper. Elliott is now one of the most productive activist investors with a history of effective and successful strategic activism in the technology sector. In the past 10 years, the company has hired 25 technology companies and has achieved an average return of 20.60% compared to 8.56% for Russell 2000 over the same periods. In the six of the 25 situations in which Elliott received the representation of the board, the company returned an average of 45.53% compared to 15.35% for the Russell 2000 in the same period. It is important that Elliott is deeply familiar with Juniper and previously hired the company from 2014 to 2015. In this commitment, Elliott called for a number of capital allocation and strategic initiatives that ultimately chose Gary Daichendt and Kevin Denuccio for board seats. In particular, Denuccio is still on the Juniper board today.
While we believe that Elliott's activist campaign and the value at HPE convince itself of a complete activist cycle itself, we would not be mentioned in view of today's economic climate that they mention something about tariffs. HPE is probably in a better position than Dell to face certain geopolitical headwind. The majority of the HPE servers correspond to the agreement between the United States and Mexico Canada and are manufactured in Mexico. In contrast, a significant part of Dell's PC products is manufactured in China and is therefore subject to considerably more tariff.
Ken Squire is the founder and president of 13D monitor, an institutional research service for shareholders, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in an activist 13D investment.