Enterprise technology giant Hewlett Packard Enterprise (HPE) crashed Friday after the company's fiscal year earnings guidance fell well short of views.
HPE stock plunged as much as 10% in the stock market today, and ended the regular session down nearly 7% to 22.96. The drop resulted in a failed near-breakout. Hewlett Packard Enterprise stock had formed a cup base with a buy point of 24.89, and shares came within a penny of that price on Wednesday. But Friday's fall of more than 8% below the buy point triggers a sell signal, in any case.
The technology company — half of the former Hewlett-Packard that was split into HPE and PC/printer company HP Inc. (HPQ) in 2015 — beat expectations with its earnings per share minus items and revenue for its fiscal Q1 ended Jan. 31. But its EPS ex items outlook for the current quarter and fiscal year fell well short.
In its earnings release, HPE cited three factors for the guidance shortfall: "increased pressure from foreign exchange movements, higher commodities pricing, and some near-term
execution issues."
IBD'S TAKE: HPE barely fell short of a record high on Wednesday, but plenty of companies have been hitting 52-week highs during the current uptrend. IBD's New Highs list, though, ranks record-setters by other performance metrics.
HPE is spinning off its services unit to Computer Sciences (CSC) and merging its software unit with U.K.-based Micro Focus, with the former slated for completion by April 1 and the latter by Sept. 1. But the "key areas of weakness were servers and storage" which is "worrisome as these segments will be part of 'RemainCo' after the company completes" the CSC and Micro Focus moves, FBN Securities analyst Shebly Seyrafi said in a research report.
Seyrafi cut his price target on HPE stock to 25 from 26, but he maintained an outperform rating, saying "we believe that multiple negative factors hit the company all at once," including a constrained supply of needed Nand flash storage.
"While HPE shares benefited in 2016 from a strong capital allocation program and an aggressive plan to separate business units, core execution issues may cause worry about the pro forma EPS outlook, now $1.13-$1.23," Pacific Crest analyst Alex Kurtz wrote in a research note, maintaining a sector weight rating on the stock.
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