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Having just completed their first quarter since the Nov. 1 split of their former parent company, the stock of Hewlett Packard Enterprise , the Big Data and hybrid cloud operations of the old Hewlett-Packard Co., has outperformed its sibling HP Inc. , which retained the legacy personal computer and printer business. The new Hewlett Packard Enterprise ( HPE ) fell 2.5% in the stock market today , to 13.45. True, that’s 15% off its all-time set Dec. 1 at 15.88, but HP Inc. ( HPQ ) is trading 33% below its post-Nov. 1 high of 14.82, touched Nov. 24. It fell 0.9% to 9.88 on Tuesday. “Upon the split we argued in favor of HPE over HPQ stock,” wrote UBS analyst Steven Milunovich in a research note Tuesday. “Hewlett Packard Enterprise has momentum with expected slight revenue growth in constant currency and an improving operating margin in fiscal 2016. This outlook was reinforced on the last earnings call (Nov. 25). “In contrast, HP Inc. told investors it would be investing for long-term gain. Our initial issue was the unsustainability of printer margins, but then unit demand fell apart last quarter. We remain concerned that HPQ estimates could be too high.” For the fiscal first quarter ended Jan . 31, analysts polled by Thomson Reuters expect the Enterprise company to report earnings down 17% to 40 cents per share on revenue down 2.7% to $12.68 billion, vs. a pro forma 48 cents on $13.03 billion in the 2015 Q1. Analysts expect the performance of HP Inc., the PC/printer company, to slide further than Enterprise, with Q1 earnings down to 36 cents on falling sales to $12.23 billion. For fiscal 2016 ending Oct. 31, the Enterprise company expects earnings of $1.85-$1.95 per share minus items, vs. the $1.84 pro forma earned in 2015. It guided revenue to $50.81 billion, down from the pro forma $52.12 billion of 2015. Analysts expect 2016 EPS of $1.87 minus items on revenue of $50.68 billion. Hewlett Packard Enterprise and analysts expect profitability and sales to improve in 2017 and beyond. Reiterating a buy rating and 18.50 price target on Enterprise, Milunovich said: “HPQ is slightly less expensive than HPE on all measures, but we prefer HPE’s better earnings momentum. Even discounting HPE’s segment P/Es by 20%-30% relative to comps results in an overall multiple of almost 10x and a price target of $18.50. The stock looks more expensive on current but inexpensive on normalized free cash, which we expect to be achieved in fiscal 2018.” UBS rates HP Inc. as neutral with a 15 price target. Meg Whitman, who remains chair of both companies, took the CEO title of Hewlett Packard Enterprise as she had with the former company, but named Dion Weisler CEO of HP Inc. Both companies are expected to report fiscal Q1 earnings this month. Scalper1 News
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