HPE stock: Here’s why Hewlett Packard Enterprises could soar in 2016

HPE stockHewlett Packard Enterprise is Selling a Key Unit

Hewlett Packard Enterprise Co (NYSE:HPE) is selling its software division. This news carries limited weight, as far as Hewlett Packard Enterprise stock, or its business, is concerned. Still, the company, which was spun off from HP Inc (NYSE:HPQ) last year, could keep reaping benefits. The software segment currently accounts for about six percent of HPE’s sales.

After cutting the cord with its printing branch and home computers, Hewlett Packard Enterprise wants to sell its software division. The final transaction would bring somewhere in the range of $10.0 billion to its coffers. Hewlett Packard Enterprise stock has gained about two percent on the rumors. But that’s only part of the story.

Indeed, HPE stock has gained close to 42% year-to-date, which makes it one of the sleeper hits among technology stocks. At least two investment funds are considering acquiring HPE’s software business. They are Thoma Bravo (which has already acquired publishers like Compuware Corporation and Qlik Technologies Inc (NASDAQ:QLIK)) and Vista Equity (Ping Identity, Marketo Inc (NASDAQ:MKTO), etc.). (Source: “Exclusive: HP Enterprise in talks to sell software unit to Thoma Bravo – sources,” Reuters, September 1, 2016.)

The Long-Term Investment Angle on HPE Stock is Rather Exciting.

Even while it could add $10.0 billion to its coffers, HPE’s software division only accounts for a minor portion of the firm’s division. CEO Meg Whitman wants to focus on high-end solutions for data centers (infrastructure, data centers, networking, etc.). (Source: Ibid.)

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HPE software division’s current portfolio of activities includes cloud technologies, big data, security, and supervision services. The reason that investors should be bullish is that HPE has found a niche and a direction. This can only benefit HPE stock in the long run. HPE, which separated last year from the Hewlett-Packard business that produces printers and desktops, wants to continue streamlining in this way, shifting attention to higher-growth segments.

HPE’s software revenues have dropped every quarter since the company split from HP Inc. In fiscal 2015, such sales amounted to $3.6 billion; a year earlier, they were $3.9 billion. In 2016, meanwhile, HPE has been one cash-generating machine.

This Year HPE Has Already Shed Several Divisions

In April, the company agreed to sell its Indian outsourcing company Mphasis Ltd. (NSE:MPHASIS) for around a billion dollars to Blackstone, one of the top asset managers in the world. That deal was concluded on September 1. In late May, HP split its IT services division into a new joint venture with Computer Sciences Corporation (NYSE:CSC). The transaction had a value of $8.5 billion. HPE expects to complete the “spin-merge” by March of next year. HPE has a 50% stake in the new services specialist. (Source: “HPE CIO tackles tough ‘spin merge’ with CSC,” CIO, August 31, 2016.) HPE will now focus more strongly on its core competency hardware and the more promising cloud business.

The cloud is the business of the future. Software giants such as Microsoft Corporation (NASDAQ:MSFT), Oracle Corporation (NYSE:ORCL), and SAP SE (ADR) (NYSE:SAP) have shifted their focus to the cloud. Even Amazon.com, Inc. (NASDAQ:AMZN) has gotten into the game Revenues are lagging far behind yet. HPE is no exception. But, HEP’s software sale is more than simply a move to ease the transition into more cloud-based developments. It’s all part of a new overall vision for the company set out by Whitman. So far, given the course of HPE, she knows what she’s doing to ensure gains for investors.

HPE’s ultimate goal is to become more competitive based on three basic pillars: growth, higher margins, and more cash on the books. (Source: “Meg Whitman Shakes Up Hewlett Packard Enterprise — Again,” Fortune, June 27, 2016.)

HPE’s future will not be based on processors, but dynamic random access memory (DRAM). HPE has introduced various advanced versions of this concept, including communication between components through photonic links. Whitman wants to speed up development of “The Machine,” an experimental computing model, in order to bring the work of its R&D division to the market faster. The goal is to have a prototype of The Machine by the end of the year. (Source: Ibid, Fortune.)

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