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Shares of
Hewlett Packard Enterprise
dropped Friday after receiving a downgrade to Sell from a Goldman Sachs analyst, who cited weakening spending environment for U.S. information technology.
Analyst Rod Hall downgraded the IT hardware and software company’s stock to Sell from Neutral and cut his price target to $14 from $16.
Shares of Hewlett Packard Enterprise (ticker:
HPE
) declined 7.4% to $14.76 on Friday.
Hall’s predictive model suggested that the IT spending environment will weaken by late 2021 or early 2022, spurring the downgrade. Goldman’s spending predictive index for October was +1.1, well below record highs of +4 and +5 from April to June this year, he said.
The analyst also was wary of declining prices for DRAM memory storage, which were down 4% in October. Lower DRAM prices could result in lower prices for servers that could harm volume demand, Hall said.
For Hall, HP Enterprise was “expensive” compared with competitors. The stock was trading at 11 times the next 12 months’ cash flow, compared with
Dell
(
DELL
) trading at 7 times the company’s cash flow with the potential to regain market share in the near future.
“Overall, we see both Dell and
Cisco
(
CSCO
) as better options for investors within our enterprise IT hardware coverage,” Hall wrote.
There could still be an upside for HP Enterprise. Hall noted that the company’s “substantial” backlog could “offset some of these headwinds in the near term.”
In late October, HP Enterprise gave upbeat guidance for fiscal 2022 and the next three-year period, telling analysts the company was expecting 2022 fiscal revenue growth of 3% to 4% in constant currency.
The stock has generally outperformed the market this week, including outperforming some of its competitors. The stock has gained nearly 40% this year.
Write to Sabrina Escobar at sabrina.escobar@barrons.com