Investing in Hewlett Packard Enterprise (HPE -10.76%) wouldn't have been an immediately profitable enterprise on Monday. After all, the tech hardware company's shares slumped by nearly 11% across that trading session, on the back of an analyst recommendation downgrade.
From buy to hold
The downgrade occurred on Sunday and was enacted by Evercore ISI's Amit Daryanani. He now considers HP Enterprise to be only an in-line (read: hold), down a peg from his previous recommendation of outperform (buy). Despite the change, Daryanani maintained his $65-per-share price target on the stock.
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According to reports, the analyst's modification was due largely to HP Enterprise's recent share price appreciation. This has raised key valuations, including forward P/E, which stood at 13 as of the update. Daryanani pointed out that this is well above the company's five-year average.
He took pains to enumerate several positive qualities he still finds in HP Enterprise, including management's skill in executing on its objectives. On the downside, he doesn't foresee many catalysts that would vault its fundamentals notably higher.
NYSE: HPE
Key Data Points
The low-margin issue
Daryanani also expressed concern that HP Enterprise's returns on relatively low-margin artificial intelligence (AI) hardware will dampen profitability, and I think that's a valid concern. I don't think the hot action with AI build-outs is in that segment, so I'd look elsewhere for stocks to capitalize on the still-feverish uptake of the technology.
