© Reuters. Deutsche Bank Says HPE (HPE) Range-Bound in Downgrade, While Buying Opportunity Seen in NetApp (NTAP)
By Sam Boughedda
Deutsche Bank analyst Sidney Ho downgraded Hewlett Packard Enterprise (NYSE:) from Buy to Hold, lowering its price target to $16 from $18 Tuesday. In contrast, the analyst, in a broader note on the IT hardware industry, upgraded NetApp (NASDAQ:) to Buy from Hold, lowering its price target to $84 from $90.
Speaking on HPE, Ho said they believe the stock is likely range-bound in the near to medium term.
“While HPE saw four consecutive quarters of 20%+ y/y order growth, we expect order growth to start decelerating (or even turning negative) as IT spending starts to slow down. We also note that HPE’s supply chain has lagged its peers, which could lead to share losses as demand trends continue to be supply-driven. In addition, we expect its HPC revenue and margins to remain lumpy, even though we are modeling a substantial revenue increase in F4Q related to the Frontier project,” wrote the analyst.
On NetApp, Ho explained that the company’s share “underperformance year-to-date of down -30% (vs. down-18% for IT hardware peers) creates a buying opportunity.”
“We think the current valuation at ~11x CY23E EPS (vs. a 5-year median of ~15x) is compelling. NTAP’s miss in its public cloud ARR growth target was a bit surprising to us, but considering the company has already implemented plans to address the issues, we expect the business to get back on its growth trajectory, although the acceleration will likely come in 1H CY23 as new hires will take some time to be productive,” said Ho.
The analyst added that the re-acceleration of public cloud ARR, which has a high mix of software, is the key to a higher valuation multiple for the stock vs. its historical range.
Be the first to comment