Is There More Upside to HPE Stock?
Hewlett Packard Enterprise Co (NYSE:HPE) stock is among the very few names that had a great start to 2016. Within a week of reporting stellar first-quarter results, HPE stock has soared nearly 12%. A new report suggests that this rally will likely continue through the year.
Before I get to it, let’s rewind back to March of 2015. Exactly a year ago, HP announced the acquisition of Aruba Networks for $3.0 billion. At that time, many were skeptical about the company’s move. The struggling HP already had too much on its plate. Rival Cisco Systems, Inc. (NASDAQ:CSCO) was becoming a threat to its survival.
Recall that HP’s wired networking business of Ethernet switches was in a decline in both consumer and enterprise markets. On one hand, the consumer market had largely abandoned the PC market and had shifted to LTE-based smartphones and tablets. On the other hand, the enterprise market was also switching over to wireless networking.
At this critical juncture, Aruba promised to offer what HP was direly missing—that is, wireless networking solutions. So Meg Whitman took a leap of faith.
Fast-forward to this year and everything has fallen right into place. Within only six months of closing the acquisition, HPE managed to increase its sales revenue in the wireless networking industry by more than four-fold.
International Data Corporation (IDC) has just revealed the statistics on the worldwide wireless LAN (WLAN) industry and HPE has stood out as a clear winner. (Source: “Worldwide WLAN Market Sees Best Growth of Lukewarm Year in the Fourth Quarter of 2015, According to IDC,” IDC, March 7, 2016.)
According to the report, HPE’s revenue has grown tremendously since Aruba’s acquisition. The company is now the second-biggest vendor of WLAN after Cisco and is slowly clawing at the latter’s market share.
The report’s findings reiterate the company’s first-quarter results reported last week. Remember that HPE’s “Networking” segment posted the strongest growth among all of its segments. Revenue for this segment shot up a whopping 54%.
Case in point: nobody could have predicted such stellar synergies to flow out of the Aruba deal, but Whitman’s wager was right on the mark. This is one acquisition that has truly paid off.
The Bottom Line on HPE Stock
Former Hewlett-Packard’s decision to split into two separate businesses last year has saved this company from becoming irrelevant in the industry. The two offshoots—HP Inc and HP Enterprise Co—now function with better focus.
HPE has particularly emerged as a promising business after doing away with the declining PC business. The company now holds the growing enterprise networking, servers, and cloud computing businesses.
The good news is that HPE is finally finding traction in the industry. Long story short, the robust first-quarter results and the IDC report bear glad tidings for holders of HPE stock in 2016.