Hewlett Packard Enterprise’s Tough Call: Buybacks Or Buyouts?
@HewlettPackardEnterprise ‘s ( #HPE ) plans for using cash - possibly for a bigger stock buyback or more acquisitions - will be a big topic when the company meets with analysts on Wednesday. [ibd-display-video id=2372040 width=50 float=left autostart=true]Also known as HPE, the company in August completed the sale of its software business to U.K.-based @MicroFocus International. HPE earlier spun off its enterprise services business, which merged with Computer Sciences to create DXC Technology ( DXC ). “We believe investors are focused on the potential for an accelerated stock repurchase program, which we think is possible but not a certainty,” Jefferies analyst James Kisner said in a note to clients. Hewlett-Packard split into two publicly traded companies in November 2015, with its printer and PC business becoming HP Inc. @HPE is battling @Cisco Systems [ticker symb=CSCO ] and @DellTechnologies ( #DVMT ), which acquired #datastorage systems maker #EMC last year, as corporate spending on computer networking and data storage systems slows down. Amit Daryanani, analyst at RBC Capital, says HPE may need to invest in growth. Dell acquired data storage company EMC and its @VMware ( VMW ) subsidiary last year. IBD’S TAKE: If you want to understand the state of the market, read IBD’s Stock Market Today columns throughout the market day, and The Big Picture at the day’s end (take a free trial ) for timely market analysis and highlighted growth stocks breaking out of proper bases. “On an adjusted net cash basis, we estimate HPE currently has around $6.5 billion in net cash,” he said in a report. “Although we acknowledge share repurchases would be the low-hanging fruit option, we think HPE should look into utilizing cash to accelerate/sustain its revenue trajectory longer term by using the cash for accretive (mergers), vs. solely focusing on (earnings per share) benefits on the buyback side.” Kisner disagrees. “At this point it seems to us that there aren’t any obvious holes in HPE’s hardware portfolio nor are there any obvious targets that don’t exceed the $2 billion to $3 billion (target range) HPE has previously talked about. It stands to reason from our perspective that we may be entering a period of reduced M&A activity for HPE.” HPE shares dropped 1.7% to close at 14.61 on Tuesday.