Historians may some day look back at this point of time as the “Summer of Tumult” for Hewlett Packard Enterprise Co (NYSE:HPE). Since it was spun off from Packard last year, HPE stock has never truly found solid footing in its corporate structure. A skein of bad publicity has only created more headaches, but do these problems bring lethal toxicity to Hewlett Packard stock or is there a bigger picture for investors to consider?
HPE Stock Hit By Internal Woes
In many ways, HP’s problems start at the top and work their way down. The abrupt departure of two senior vice presidents—Bill Hilf of HP Cloud and Manish Goel of HP’s storage business—has contributed to the image of a company with a shaky executive hierarchy. Indeed, HP’s leadership ranks have witnessed more than a few defections in recent years, including Hilf’s predecessor, Marten Mickos, who was only at Hewlett Packard for a few months before he exited in 2014. (Source: “Hewlett Packard Enterprise Cloud Chief,” Fortune, August 2, 2016.)
While HP CEO Meg Whitman continues to be viewed in the media as a major thought leader in both business and politics—she recently generated headlines for temporarily forsaking her Republican Party affiliation to endorse Hillary Clinton’s presidential campaign—she also received unflattering attention over news that thousands of members of her HP sales force failed to receive proper compensation ever since HP became a standalone entity. (Source: “Meg Whitman’s company, HPE, has struggled to pay thousands of employees properly since its split from HP,” Business Insider, July 21, 2016.)
For the less forgiving, Hewlett Packard gives the impression that it is still trying to figure out how to structure its operations. It recently combined its separate struggling “Helion OpenStack” and “Helion CloudSystem” businesses into a single “Software-Defined & Cloud Group,” while its less-than-stellar enterprise services business is being merged into a new entity co-owned by Tysons, Virginia-based Computer Science Corporation (CSC). The latter deal had its share of negative news, as CSC announced laying off 500 workers for the combined operation shifts to India. (Source: “CSC announces layoffs in advance of HPE merger,” Computerworld, July 28, 2016.)
HP’s missteps and changing structure has generated analyst chatter of a potential acquisition by private equity firms, with Apollo Global Management being floated as a would-be suitor. Leon Black, CEO at Apollo Global Management, would neither confirm nor deny if HPE was in his crosshairs. (Source: “Hewlett Packard Enterprise Bidder Says It’s Finding Plenty of Cheap Deals,” Fortune, August 4, 2016.)
HPE Stock Gets Mixed Results
Still, there are plenty of investment experts that are able to overlook the company’s hiccups and embrace HPE stock with gusto. Hanlon Investment Management purchased 44,500 additional shares in Hewlett Packard stock in the most recent quarter-end, bringing its total ownership to 276,636 shares with a value of nearly $6.0 million. Edge Wealth Management shared the sentiment, buying 16,486 additional shares to create a new total of 46,273 shares in HPE stock worth $881,038. Citigroup upgraded HPE stock to “Buy” last month, while Deutsche Bank reiterated its “Buy” status one month prior. (Source: “Hanlon Investment Management buys $5,950,440 stake in Hewlett Packard Enterprise Co (HPE),” Trade Calls, August 9, 2016.)
But not everyone is impressed with HPE stock. Curian Capital sold 336,173 shares, or 89.81% of its holdings, in the most recent quarter and now retains 38,127 shares valued at $725,938. As well, a survey of analysts by FactSet last month found 17 analysts urging “Hold” on HPE stock, compared to 12 recommending “Buy,” two rating it “Overweight,” and one advocating “Sell.” (Source: “Analysts Ratings: Hewlett Packard Enterprise Co (NYSE:HPE), LinkedIn Corporation (NYSE:LNKD),” Isstories, August 9, 2016.)
The Takeaway Regarding HPE Stock
Of course, there is no such thing as a sure bet in the tech world, let alone in tech stocks. Writing off HPE stock as a bumbling entity that is heading in the wrong direction would be a major mistake. After all, there is no shortage of examples of struggling companies that can unexpectedly reinvent themselves with bold new products and services. (Can you say Steve Jobs?)
Yes, the highly visible problems in HP’s leadership and structure seem very curious when compared to its peers. But there is no reason to assume that difficulties will not be fixed as HP reinvents itself. While the chatter over potential buyouts is entertaining, there is little evidence that Whitman and her C-suite team are frantically looking for a deep-pocketed entity to take the reins away from them.
Despite its admittedly rocky summer, HPE stock strength is showing no signs of fraying, nor is there any reason to expect a rapid decline in viability. Investors should not write off HP or its stock, as the company’s next chapter promises to be more focused and much more invigorating.