Intrinsic value of Hewlett Packard Enterprise - HPE

Previous Close

$17.15

  Intrinsic Value

$35.08

stock screener

  Rating & Target

str. buy

+105%

  Value-price divergence*

+3%

Previous close

$17.15

 
Intrinsic value

$35.08

 
Up/down potential

+105%

 
Rating

str. buy

 
Value-price divergence*

+3%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HPE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 29.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.81
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  50,123
  51,125
  52,301
  53,645
  55,155
  56,827
  58,661
  60,659
  62,822
  65,152
  67,652
  70,327
  73,181
  76,220
  79,450
  82,877
  86,509
  90,354
  94,419
  98,715
  103,251
  108,037
  113,084
  118,404
  124,009
  129,913
  136,129
  142,671
  149,556
  156,799
  164,417
Variable operating expenses, $m
 
  49,594
  50,680
  51,920
  53,312
  54,855
  56,548
  58,392
  60,387
  62,537
  64,844
  64,895
  67,529
  70,333
  73,313
  76,476
  79,827
  83,375
  87,126
  91,090
  95,276
  99,692
  104,350
  109,259
  114,431
  119,879
  125,615
  131,652
  138,005
  144,688
  151,718
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  45,973
  49,594
  50,680
  51,920
  53,312
  54,855
  56,548
  58,392
  60,387
  62,537
  64,844
  64,895
  67,529
  70,333
  73,313
  76,476
  79,827
  83,375
  87,126
  91,090
  95,276
  99,692
  104,350
  109,259
  114,431
  119,879
  125,615
  131,652
  138,005
  144,688
  151,718
Operating income, $m
  4,150
  1,531
  1,622
  1,726
  1,842
  1,971
  2,113
  2,267
  2,434
  2,614
  2,807
  5,432
  5,652
  5,887
  6,136
  6,401
  6,682
  6,979
  7,293
  7,624
  7,975
  8,344
  8,734
  9,145
  9,578
  10,034
  10,514
  11,020
  11,551
  12,111
  12,699
EBITDA, $m
  7,925
  5,099
  5,216
  5,350
  5,501
  5,668
  5,851
  6,050
  6,266
  6,498
  6,747
  7,014
  7,299
  7,602
  7,924
  8,266
  8,628
  9,012
  9,417
  9,846
  10,298
  10,775
  11,279
  11,809
  12,368
  12,957
  13,577
  14,230
  14,916
  15,639
  16,399
Interest expense (income), $m
  585
  465
  498
  536
  581
  630
  685
  746
  812
  883
  960
  1,042
  1,130
  1,224
  1,325
  1,431
  1,544
  1,664
  1,790
  1,924
  2,066
  2,215
  2,373
  2,540
  2,715
  2,900
  3,094
  3,299
  3,515
  3,742
  3,980
Earnings before tax, $m
  4,079
  1,066
  1,124
  1,189
  1,262
  1,341
  1,428
  1,521
  1,623
  1,731
  1,848
  4,390
  4,522
  4,663
  4,812
  4,970
  5,138
  5,315
  5,502
  5,700
  5,909
  6,129
  6,361
  6,606
  6,863
  7,135
  7,420
  7,721
  8,037
  8,369
  8,719
Tax expense, $m
  918
  288
  304
  321
  341
  362
  385
  411
  438
  467
  499
  1,185
  1,221
  1,259
  1,299
  1,342
  1,387
  1,435
  1,486
  1,539
  1,595
  1,655
  1,718
  1,784
  1,853
  1,926
  2,003
  2,085
  2,170
  2,260
  2,354
Net income, $m
  3,161
  778
  821
  868
  921
  979
  1,042
  1,111
  1,185
  1,264
  1,349
  3,204
  3,301
  3,404
  3,513
  3,628
  3,751
  3,880
  4,017
  4,161
  4,313
  4,474
  4,644
  4,822
  5,010
  5,208
  5,417
  5,636
  5,867
  6,110
  6,365

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15,910
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  79,629
  64,962
  66,457
  68,165
  70,082
  72,207
  74,538
  77,076
  79,824
  82,785
  85,962
  89,361
  92,987
  96,849
  100,953
  105,308
  109,922
  114,808
  119,974
  125,432
  131,195
  137,276
  143,690
  150,450
  157,572
  165,074
  172,972
  181,285
  190,033
  199,236
  208,917
Adjusted assets (=assets-cash), $m
  63,719
  64,962
  66,457
  68,165
  70,082
  72,207
  74,538
  77,076
  79,824
  82,785
  85,962
  89,361
  92,987
  96,849
  100,953
  105,308
  109,922
  114,808
  119,974
  125,432
  131,195
  137,276
  143,690
  150,450
  157,572
  165,074
  172,972
  181,285
  190,033
  199,236
  208,917
Revenue / Adjusted assets
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
Average production assets, $m
  11,268
  11,503
  11,768
  12,070
  12,410
  12,786
  13,199
  13,648
  14,135
  14,659
  15,222
  15,824
  16,466
  17,150
  17,876
  18,647
  19,465
  20,330
  21,244
  22,211
  23,231
  24,308
  25,444
  26,641
  27,902
  29,230
  30,629
  32,101
  33,650
  35,280
  36,994
Working capital, $m
  6,388
  -5,113
  -5,230
  -5,365
  -5,515
  -5,683
  -5,866
  -6,066
  -6,282
  -6,515
  -6,765
  -7,033
  -7,318
  -7,622
  -7,945
  -8,288
  -8,651
  -9,035
  -9,442
  -9,871
  -10,325
  -10,804
  -11,308
  -11,840
  -12,401
  -12,991
  -13,613
  -14,267
  -14,956
  -15,680
  -16,442
Total debt, $m
  16,090
  13,448
  14,495
  15,692
  17,036
  18,526
  20,160
  21,940
  23,866
  25,941
  28,168
  30,551
  33,093
  35,800
  38,677
  41,730
  44,965
  48,389
  52,010
  55,837
  59,877
  64,140
  68,635
  73,374
  78,367
  83,626
  89,162
  94,990
  101,122
  107,574
  114,360
Total liabilities, $m
  48,181
  45,539
  46,586
  47,783
  49,127
  50,617
  52,251
  54,031
  55,957
  58,032
  60,259
  62,642
  65,184
  67,891
  70,768
  73,821
  77,056
  80,480
  84,101
  87,928
  91,968
  96,231
  100,726
  105,465
  110,458
  115,717
  121,253
  127,081
  133,213
  139,665
  146,451
Total equity, $m
  31,448
  19,424
  19,871
  20,381
  20,955
  21,590
  22,287
  23,046
  23,867
  24,753
  25,703
  26,719
  27,803
  28,958
  30,185
  31,487
  32,867
  34,327
  35,872
  37,504
  39,227
  41,046
  42,963
  44,984
  47,114
  49,357
  51,719
  54,204
  56,820
  59,572
  62,466
Total liabilities and equity, $m
  79,629
  64,963
  66,457
  68,164
  70,082
  72,207
  74,538
  77,077
  79,824
  82,785
  85,962
  89,361
  92,987
  96,849
  100,953
  105,308
  109,923
  114,807
  119,973
  125,432
  131,195
  137,277
  143,689
  150,449
  157,572
  165,074
  172,972
  181,285
  190,033
  199,237
  208,917
Debt-to-equity ratio
  0.512
  0.690
  0.730
  0.770
  0.810
  0.860
  0.900
  0.950
  1.000
  1.050
  1.100
  1.140
  1.190
  1.240
  1.280
  1.330
  1.370
  1.410
  1.450
  1.490
  1.530
  1.560
  1.600
  1.630
  1.660
  1.690
  1.720
  1.750
  1.780
  1.810
  1.830
Adjusted equity ratio
  0.256
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,161
  778
  821
  868
  921
  979
  1,042
  1,111
  1,185
  1,264
  1,349
  3,204
  3,301
  3,404
  3,513
  3,628
  3,751
  3,880
  4,017
  4,161
  4,313
  4,474
  4,644
  4,822
  5,010
  5,208
  5,417
  5,636
  5,867
  6,110
  6,365
Depreciation, amort., depletion, $m
  3,775
  3,568
  3,595
  3,625
  3,659
  3,696
  3,738
  3,783
  3,831
  3,884
  3,940
  1,582
  1,647
  1,715
  1,788
  1,865
  1,946
  2,033
  2,124
  2,221
  2,323
  2,431
  2,544
  2,664
  2,790
  2,923
  3,063
  3,210
  3,365
  3,528
  3,699
Funds from operations, $m
  4,468
  4,347
  4,415
  4,493
  4,580
  4,675
  4,780
  4,893
  5,016
  5,148
  5,289
  4,787
  4,948
  5,119
  5,300
  5,493
  5,697
  5,913
  6,141
  6,382
  6,637
  6,905
  7,188
  7,486
  7,800
  8,131
  8,480
  8,846
  9,232
  9,638
  10,064
Change in working capital, $m
  -490
  -100
  -118
  -134
  -151
  -167
  -183
  -200
  -216
  -233
  -250
  -267
  -285
  -304
  -323
  -343
  -363
  -384
  -407
  -430
  -454
  -479
  -505
  -532
  -561
  -590
  -622
  -654
  -688
  -724
  -762
Cash from operations, $m
  4,958
  4,447
  4,533
  4,627
  4,731
  4,843
  4,963
  5,093
  5,232
  5,381
  5,539
  5,054
  5,233
  5,423
  5,623
  5,836
  6,060
  6,297
  6,548
  6,812
  7,090
  7,384
  7,693
  8,018
  8,361
  8,722
  9,101
  9,500
  9,920
  10,362
  10,826
Maintenance CAPEX, $m
  0
  -1,127
  -1,150
  -1,177
  -1,207
  -1,241
  -1,279
  -1,320
  -1,365
  -1,413
  -1,466
  -1,522
  -1,582
  -1,647
  -1,715
  -1,788
  -1,865
  -1,946
  -2,033
  -2,124
  -2,221
  -2,323
  -2,431
  -2,544
  -2,664
  -2,790
  -2,923
  -3,063
  -3,210
  -3,365
  -3,528
New CAPEX, $m
  -3,280
  -235
  -265
  -302
  -340
  -376
  -413
  -450
  -487
  -524
  -563
  -602
  -642
  -684
  -727
  -771
  -817
  -865
  -915
  -967
  -1,021
  -1,077
  -1,136
  -1,197
  -1,261
  -1,328
  -1,399
  -1,472
  -1,549
  -1,630
  -1,714
Cash from investing activities, $m
  419
  -1,362
  -1,415
  -1,479
  -1,547
  -1,617
  -1,692
  -1,770
  -1,852
  -1,937
  -2,029
  -2,124
  -2,224
  -2,331
  -2,442
  -2,559
  -2,682
  -2,811
  -2,948
  -3,091
  -3,242
  -3,400
  -3,567
  -3,741
  -3,925
  -4,118
  -4,322
  -4,535
  -4,759
  -4,995
  -5,242
Free cash flow, $m
  5,377
  3,085
  3,118
  3,148
  3,184
  3,225
  3,272
  3,324
  3,381
  3,443
  3,510
  2,930
  3,008
  3,092
  3,182
  3,277
  3,378
  3,486
  3,600
  3,721
  3,849
  3,984
  4,126
  4,277
  4,436
  4,603
  4,780
  4,965
  5,161
  5,367
  5,584
Issuance/(repayment) of debt, $m
  170
  888
  1,047
  1,197
  1,344
  1,489
  1,634
  1,780
  1,926
  2,075
  2,227
  2,383
  2,542
  2,707
  2,877
  3,053
  3,235
  3,424
  3,621
  3,826
  4,040
  4,263
  4,496
  4,739
  4,993
  5,259
  5,537
  5,828
  6,132
  6,452
  6,786
Issuance/(repurchase) of shares, $m
  -2,543
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,859
  888
  1,047
  1,197
  1,344
  1,489
  1,634
  1,780
  1,926
  2,075
  2,227
  2,383
  2,542
  2,707
  2,877
  3,053
  3,235
  3,424
  3,621
  3,826
  4,040
  4,263
  4,496
  4,739
  4,993
  5,259
  5,537
  5,828
  6,132
  6,452
  6,786
Total cash flow (excl. dividends), $m
  3,518
  3,972
  4,165
  4,345
  4,528
  4,715
  4,906
  5,103
  5,307
  5,518
  5,737
  5,313
  5,551
  5,799
  6,058
  6,330
  6,613
  6,910
  7,221
  7,547
  7,889
  8,247
  8,622
  9,016
  9,428
  9,862
  10,316
  10,793
  11,293
  11,819
  12,370
Retained Cash Flow (-), $m
  2,087
  -356
  -447
  -511
  -573
  -635
  -697
  -759
  -822
  -885
  -950
  -1,016
  -1,084
  -1,155
  -1,227
  -1,302
  -1,380
  -1,461
  -1,545
  -1,632
  -1,723
  -1,818
  -1,918
  -2,021
  -2,130
  -2,243
  -2,362
  -2,486
  -2,616
  -2,752
  -2,894
Prev. year cash balance distribution, $m
 
  12,380
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  15,997
  3,719
  3,835
  3,955
  4,079
  4,209
  4,344
  4,485
  4,633
  4,787
  4,297
  4,466
  4,645
  4,831
  5,028
  5,233
  5,450
  5,677
  5,915
  6,165
  6,428
  6,704
  6,994
  7,299
  7,619
  7,955
  8,307
  8,678
  9,067
  9,475
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  15,337
  3,404
  3,337
  3,256
  3,162
  3,055
  2,935
  2,803
  2,661
  2,510
  2,040
  1,906
  1,766
  1,622
  1,476
  1,330
  1,186
  1,045
  911
  783
  665
  556
  458
  372
  296
  232
  178
  134
  99
  71
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Hewlett Packard Enterprise Company provides technology solutions to business and public sector enterprises. It operates through Enterprise Group, Software, Enterprise Services, and Financial Services segments. The Enterprise Group segment offers industry standard servers and mission-critical servers to address the array of its customers' computing needs; converged storage solutions, including 3PAR StoreServ, StoreOnce, all-flash arrays, and software defined and StoreVirtual products; wireless local area network equipment, mobility and security software, switches, routers, and network management products; and support and technology consulting services. The Software segment offers software to capture, store, explore, analyze, protect, and share information and insights within and outside organizations; HP Vertica, an analytics database technology for machine, structured, and semi-structured data; and HP IDOL, an analytics tool for human information, as well as solutions for archiving, data protection, eDiscovery, information governance, and enterprise content management. This segment also provides application delivery management, enterprise security, and IT operations management software products. The Enterprise Services segment offers technology consulting, outsourcing, and support services in infrastructure, applications, and business process domains within traditional and strategic enterprise service (SES) offerings, which include analytics and data management, security, and cloud services. The Financial Services segment provides leasing, financing, IT consumption and utility programs, and asset management services. The company markets and sells its products through resellers, distribution partners, original equipment manufacturers, independent software vendors, systems integrators, and advisory firms. Hewlett Packard Enterprise Company is headquartered in Palo Alto, California.

FINANCIAL RATIOS  of  Hewlett Packard Enterprise (HPE)

Valuation Ratios
P/E Ratio 9
Price to Sales 0.6
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 17
Growth Rates
Sales Growth Rate -3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.9%
Cap. Spend. - 3 Yr. Gr. Rate 5.6%
Financial Strength
Quick Ratio 5
Current Ratio 0.2
LT Debt to Equity 39.9%
Total Debt to Equity 51.2%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 5.5%
Return On Equity 9.7%
Return On Equity - 3 Yr. Avg. 7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 29.2%
Gross Margin - 3 Yr. Avg. 28.9%
EBITDA Margin 16.8%
EBITDA Margin - 3 Yr. Avg. 13.3%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 5.1%
Pre-Tax Margin 8.1%
Pre-Tax Margin - 3 Yr. Avg. 5%
Net Profit Margin 6.3%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 22.5%
Eff/ Tax Rate - 3 Yr. Avg. -6.1%
Payout Ratio 11.8%

HPE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HPE stock intrinsic value calculation we used $50123 million for the last fiscal year's total revenue generated by Hewlett Packard Enterprise. The default revenue input number comes from 2016 income statement of Hewlett Packard Enterprise. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HPE stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HPE is calculated based on our internal credit rating of Hewlett Packard Enterprise, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hewlett Packard Enterprise.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HPE stock the variable cost ratio is equal to 97.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HPE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.7% for Hewlett Packard Enterprise.

Corporate tax rate of 27% is the nominal tax rate for Hewlett Packard Enterprise. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HPE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HPE are equal to 22.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Hewlett Packard Enterprise operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HPE is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $31448 million for Hewlett Packard Enterprise - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1702.76 million for Hewlett Packard Enterprise is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hewlett Packard Enterprise at the current share price and the inputted number of shares is $29.2 billion.

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COMPANY NEWS

▶ Why HP Inc. Shareholders Have Nothing to Worry About   [Jul-17-17 09:08AM  Motley Fool]
▶ [$$] HPE May Have Blinders on for Infosight   [Jul-16-17 11:17PM  Barrons.com]
▶ Cisco Just Bought This Networking Security Startup   [Jul-13-17 01:32PM  Fortune]
▶ Wall Street Opens Without a Clear Direction   [Jul-10-17 03:47PM  GuruFocus.com]
▶ Will AMDs EPYC Chip Challenge Intels Xeon Chip?   [Jul-04-17 10:37AM  Market Realist]
▶ Hewlett Packard Enterprise Stock Continued to Fall in June   [Jul-03-17 05:35PM  Market Realist]
▶ Chipmaker AMD Makes a Big Bet on Brand-New Tech   [Jun-28-17 06:30AM  Fortune]
▶ CSRA CEO pay package soared 130 percent in last year   [Jun-27-17 03:15PM  American City Business Journals]
▶ Is This Tech Celebrity And Political Honcho Planning An Exit?   [Jun-26-17 04:00PM  Investor's Business Daily]
▶ Goldman Sachs: Stock Picks for a New Era   [06:00AM  Investopedia]
▶ HPE Goes Big With New Gen10 Servers   [Jun-19-17 11:21PM  Forbes]
▶ These are the Bay Area's 10 largest public companies   [Jun-16-17 09:57AM  American City Business Journals]
▶ Arista Price Target Hiked: Less Cisco Risk, More HPE Upside   [Jun-15-17 04:44PM  Investor's Business Daily]
▶ The 3 Best Server Companies to Buy in 2017   [Jun-14-17 03:46PM  Motley Fool]
▶ How Is VMwares vSAN Performing?   [10:36AM  Market Realist]
▶ Hewlett Packard Enterprise CIO Named Tech Chief at Tyson Foods   [Jun-13-17 02:52PM  The Wall Street Journal]
▶ A Technical Analysis of Apple   [07:35AM  Market Realist]
▶ [$$] Dell Outlook a Mixed Bag for HP, HPE   [Jun-12-17 03:27PM  Barrons.com]
▶ Inside NetApps Shareholder Returns   [10:36AM  Market Realist]
▶ HPE CEO Meg Whitman on Margins, M&A and Trump   [08:04PM  Bloomberg Video]
▶ Meg Whitman Expects HPE's Margins to Improve   [05:58PM  Bloomberg Video]
▶ HPE's Neri Sees 'Huge Progress' Since Spinoff   [07:30PM  Bloomberg Video]
▶ Cisco, Hewlett Packard Enterprise eyed as possible Gigamon buyers   [06:16PM  American City Business Journals]
Stock chart of HPE Financial statements of HPE Annual reports of HPE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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