By Sam Boughedda
Investing.com -- Shares of Hewlett Packard Enterprise Co (NYSE:HPE) are trading 1.5% above last week's close after positive comments from Jefferies analyst Kyle McNealy in a note to clients.
McNealy reiterated a Buy rating and $20 price target on the stock after recent meetings with HP Enterprise CFO Tarek Robbiati, who signaled that HPC [high-performance computing] and AI have the potential to provide a pickup for both revenue growth and profitability in 2022.
"HP (NYSE:HPQ) Enterprise posted 3.7% Y/Y growth in Q1’22 and 2.7% Y/Y in FY’21 for HPC & AI. That’s behind their 8-12% long-term target," stated McNealy.
"They had two large deals that they expected to gain acceptance in Q1’22 which slipped into Q2 and impacted Q1 growth by more than 10%," he added.
The analyst said the deals are "large and long-term contracts" that don’t achieve revenue recognition until the system is fully installed, tested, and accepted by the customer.
The analyst explained that the project-related costs can weigh on profitability in certain quarters with lower revenue recognition, as was the case in Q1.
McNealy wrote that the current valuation reflects an expectation of significantly deteriorating business trends, but he believes low-single-digit revenue growth is "looking increasingly achievable" in FY 2022.