Hewlett Packard Enterprise (HPE) shares fell 8% on Monday after Evercore ISI downgraded the stock to In Line from Outperform, citing its sharp recent rally and more balanced risk-reward profile.
The brokerage maintained its $65 price target.
HPE shares closed at $62.08 on Friday, Sept. 11, after gaining 15% over the previous five trading sessions and 184% over the past six months.
According to Evercore analyst Amit Daryanani, the stock had risen 158.5% year to date, compared with an 11.9% gain for the S&P 500.
HPE was also up 37.6% in the third quarter, while the benchmark index had gained 2.1%.
Evercore says HPE shares are fairly valued
Daryanani said the downgrade reflected the recent appreciation in HPE’s share price.
The stock was trading at 13 times projected fiscal 2027 earnings, compared with its five-year average of eight times.
“Given the stock now trading at 13x FY27 P/E versus its five-year average of 8x and 14x EV/’27 FCF, in line with its historical average, we believe shares are fairly valued at current levels,” Daryanani wrote in a note to clients.
Evercore said the company’s recent re-rating was supported by fundamental improvements.
The brokerage credited HPE management with strong execution during the first year of integrating Juniper Networks, particularly amid challenging supply conditions.
HPE shares have gained 192% since the Juniper acquisition closed, according to Evercore.
However, the firm said the setup could become more difficult from this point, with fewer immediate catalysts available to support another expansion in the stock’s valuation multiple.
Juniper integration and networking margins remain key
Evercore identified three developments that could make it more constructive on HPE shares.
The first is continued progress in integrating Juniper Networks, particularly if the integration leads to higher margins.
The second involves the company’s business mix and margin quality.
Evercore noted that cloud and artificial intelligence activities generate lower margins than networking equipment.
The third potential catalyst is any benefit from HPE’s Helios opportunity.
The brokerage expects those potential tailwinds to emerge primarily during fiscal 2027 and fiscal 2028.
Networking remains particularly important to HPE’s profitability, accounting for more than half of segment operating profit.
Although networking orders increased 36% in the July quarter, pro forma revenue rose 10%, trailing the growth reported by Cisco and Arista, according to Evercore.
HPE faces a tougher setup after strong rally
Evercore said HPE’s recent performance had been justified by improvements in execution and the Juniper integration.
Nevertheless, the firm believes further gains could depend on stronger networking supply conditions and additional margin improvement.
“From here, however, we see a tougher setup,” Daryanani wrote, adding that the balance between potential returns and risks had become more even.
“With risk/reward more balanced at current levels, we are moving to the sidelines with an In Line rating,” he said.
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