Avoid HPE and Dell Stock

Hewlett Packard Enterprise (NYSE:HPE) lost its $17 level position when the company reported fourth-quarter revenue that fell year-on-year. Investors should avoid this stock for now.

HPE’s Q4 revenue fell 9.3% Y/Y to $7.21 billion. Although it stabilized revenue and is transitioning to higher-margin and more recurring revenue, the performance could have been better. Intelligent Edge non-GAAP revenue fell 6.2 pts Y/Y. Hybrid IT rose 2.1 pts. FCF of $878 million is despite an arbitration award to DXC Technology (NYSE:DXC).

HPE’s non-GAAP EPS rose 20% to $0.49 for the year but investors should wait for a growing gross margin in the next two quarters. Intelligent Edge lagged in Q4, with revenue falling 6% Y/Y. So, investors should look for Aruba product revenue stabilizing and Aruba services revenue growing at above 20%.

Dell Technologies (NYSE:DELL) is another tech stock to avoid after reporting weak Q3 results. It also lowered its FY 2020 sales forecast at $91.8 billion - $92.5 billion. This is below the $93.5 billion consensus estimate. Long-term IT spending will grow 4.1% CAGR through 2023 but Dell’s 2% Y/Y revenue growth in 3Q20 still lags the industry average.

Dell’s VMware business is another disappointment. Revenue grew 11% Y/Y, trailing the pace achieved in the last four quarters. Still, if its Pivotal and Carbon Black acquisition rejuvenates growth, then investors should consider DELL stock again.