Hewlett Packard Enterprise Co (HPE)

Conclusion

Hewlett Packard Enterprise sells servers, storage, networking and security products and services to commercial and large enterprise customers, and it runs its own financing arm. At 47.54 USD on 2026-11-09, the market capitalisation is 63.1 billion USD and the enterprise value is 77.1 billion USD.

The verdict is overvalued. The price-to-earnings ratio is 22.6 today against a ten-year median of 11.9, and EV to EBITDA is 12.3 against 7.1. The discounted cash flow gives 30.39 USD per share at a discount rate of 12.2%, and the fair value from historical multiples is 24.28 USD. The fair value band runs from 21.87 to 32.80 USD with a midpoint of 27.34 USD, giving a margin of safety of -42.5% at the current price. The reverse DCF implies growth of 10.9% a year, while revenue grew 4.9% a year over five years and earnings per share fell over the last three years.

The strongest numbers are free cash flow conversion of 1.49 over the last twelve months, seven earnings beats in eight quarters, and a Beneish M-score of -2.27, which is read as unlikely manipulation. The weakest are ROIC of 5.3% against a WACC of 10.2%, an Altman Z-score of 1.31 in the distress zone, and net debt to EBITDA of 2.24. If returns stay below the cost of capital, the premium in the price has little support from the business itself.

Financial health

Financial strength is yellow: interest coverage of 15.6 is good, while the current ratio of 1.11 and net debt to EBITDA of 2.24 are neutral and the Altman Z-score of 1.31 is weak. The quick ratio is 0.53 and debt to equity is 0.76. The Altman Z-score of 1.31 sits in the distress zone, but that model was designed for manufacturers and this company is not one, so the reading should be weighed with care. Insolvency risk: low, about 1.5% by the estimate of the Ohlson model over one to two years. Interest coverage of 15.6 on a trailing basis shows that operating earnings cover interest payments comfortably, which limits the near-term pressure from the debt load.

Earnings quality

Earnings quality is green: the free cash flow conversion, the Beneish score and the share count all assess as good. Free cash flow conversion is 1.49 over the last twelve months and 1.01 over five years, and the accrual ratio is -3.9%, which means cash earnings exceed reported earnings. Stock-based compensation is 1.9% of revenue, and free cash flow after it is 3.36 billion USD. The share count has risen at a compound rate of 0.5% over five years, so there are no net buybacks. The Piotroski score is 5 out of 9. Earnings beat expectations in seven of the last eight quarters, with an average surprise of 14.0%. Estimates for next year rose 16.9% over 90 days, with twelve upward revisions and none downward in the last 30 days.

Profitability

Profitability is yellow: the operating margin relative to its median is good, while ROIC minus WACC is bad and the net margin is neutral. The gross margin is 36.0% against a ten-year median of 31.3%, the operating margin is 8.3% against 7.7%, and the net margin is 6.7% against 4.9%. ROIC is 5.3% against a WACC of 10.2%, a given gap of -4.85%, and the five-year median ROIC is 5.8%, so the business is currently earning less than its cost of capital. Return on equity of 10.5% is flattered by leverage: the equity multiplier of 3.07 shows that the balance sheet, not the margin, does much of the work. The tax rate is assumed at 21%.

Growth

Growth is yellow: the next-year earnings estimate is good, while the earnings per share trend is bad and revenue growth is neutral. Revenue grew at a compound rate of 6.9% over three years, 4.9% over five years and fell 4.1% a year over ten years. Revenue grew in six of the last ten years. Earnings per share fell at a compound rate of 59.7% over three years and 29.1% over ten years. Free cash flow per share fell 24.8% a year over three years but rose 10.6% a year over ten years. Analysts expect earnings per share to grow 23.6% next year, a figure that depends on a recovery that has not yet appeared in the three-year record.

Valuation

Valuation is red: every multiple tested sits well above its own ten-year median, and the verdict is overvalued. The price-to-earnings ratio is 22.6 against a median of 11.9, a premium of 89.8%. EV to EBITDA is 12.3 against 7.1, a premium of 72.8%. Price to free cash flow is 15.2 against 14.5, a premium of 5.0%. Price to sales is 1.5 against 0.8, a premium of 95.8%, and price to book is 2.4 against 1.1, a premium of 123.3%. The discounted cash flow gives 30.39 USD per share using a 12.2% discount rate, 4.9% near-term growth and 2.5% terminal growth; 42% of that value sits in the terminal value. The fair value from historical multiples is 24.28 USD. The fair value band is an order of magnitude built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies growth of 10.9% a year against 4.9% delivered over five years. The dividend yield is 1.3%, with a payout of 20.6% of free cash flow.

Risks

The main risk is that the price assumes growth the business has not yet delivered. Return on invested capital below the cost of capital means each new dollar invested adds little value, so a higher multiple depends on a turnaround in returns. The Altman Z-score of 1.31 and net debt to EBITDA of 2.24 leave less room if earnings weaken, although interest coverage of 15.6 currently provides a cushion. A current ratio of 1.11 and a quick ratio of 0.53 mean short-term obligations rely on ongoing cash generation. The analysis does not include a debt maturity schedule or revenue by segment, so refinancing timing and the contribution of each business line cannot be judged. The company does not report a figure for insolvency-related inputs beyond the estimates shown, and the DCF relies on assumed inputs rather than forecasts.