Intrinsic value of Hewlett Packard Enterprise - HPE

Previous Close

$14.26

  Intrinsic Value

$38.13

stock screener

  Rating & Target

str. buy

+167%

  Value-price divergence*

+9%

Previous close

$14.26

 
Intrinsic value

$38.13

 
Up/down potential

+167%

 
Rating

str. buy

 
Value-price divergence*

+9%

*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 23.2

 

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
  4,993
  5,108
  5,239
  5,387
  5,550
  5,729
  5,924
  6,135
  6,363
  6,607
  6,868
  7,147
  7,444
  7,759
  8,094
  8,449
  8,824
  9,221
  9,641
  10,084
  10,551
  11,044
  11,564
  12,111
  12,688
  13,295
  13,934
  14,606
  15,313
  16,057
Interest expense (income), $m
  585
  450
  484
  523
  567
  617
  672
  733
  799
  870
  947
  1,029
  1,118
  1,212
  1,312
  1,418
  1,531
  1,651
  1,778
  1,912
  2,054
  2,203
  2,361
  2,528
  2,703
  2,888
  3,083
  3,288
  3,504
  3,731
  3,970
Earnings before tax, $m
  4,079
  1,081
  1,138
  1,203
  1,275
  1,354
  1,441
  1,535
  1,636
  1,744
  1,861
  4,403
  4,535
  4,675
  4,825
  4,983
  5,150
  5,327
  5,515
  5,712
  5,921
  6,141
  6,373
  6,617
  6,875
  7,146
  7,431
  7,732
  8,048
  8,380
  8,730
Tax expense, $m
  918
  292
  307
  325
  344
  366
  389
  414
  442
  471
  502
  1,189
  1,224
  1,262
  1,303
  1,345
  1,391
  1,438
  1,489
  1,542
  1,599
  1,658
  1,721
  1,787
  1,856
  1,929
  2,006
  2,088
  2,173
  2,263
  2,357
Net income, $m
  3,161
  789
  830
  878
  931
  989
  1,052
  1,120
  1,194
  1,273
  1,358
  3,214
  3,310
  3,413
  3,522
  3,637
  3,760
  3,889
  4,026
  4,170
  4,322
  4,483
  4,652
  4,831
  5,019
  5,217
  5,425
  5,644
  5,875
  6,117
  6,373

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16,347
  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
  64,552
  66,037
  67,734
  69,640
  71,751
  74,067
  76,590
  79,320
  82,262
  85,419
  88,796
  92,400
  96,237
  100,315
  104,643
  109,229
  114,083
  119,216
  124,640
  130,367
  136,410
  142,783
  149,500
  156,577
  164,032
  171,880
  180,141
  188,833
  197,979
  207,598
Adjusted assets (=assets-cash), $m
  63,282
  64,552
  66,037
  67,734
  69,640
  71,751
  74,067
  76,590
  79,320
  82,262
  85,419
  88,796
  92,400
  96,237
  100,315
  104,643
  109,229
  114,083
  119,216
  124,640
  130,367
  136,410
  142,783
  149,500
  156,577
  164,032
  171,880
  180,141
  188,833
  197,979
  207,598
Revenue / Adjusted assets
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
Average production assets, $m
  9,602
  9,816
  10,042
  10,300
  10,590
  10,911
  11,263
  11,647
  12,062
  12,509
  12,989
  13,503
  14,051
  14,634
  15,254
  15,912
  16,610
  17,348
  18,128
  18,953
  19,824
  20,743
  21,712
  22,734
  23,810
  24,943
  26,137
  27,393
  28,715
  30,105
  31,568
Working capital, $m
  6,388
  -6,544
  -6,695
  -6,867
  -7,060
  -7,274
  -7,509
  -7,764
  -8,041
  -8,339
  -8,659
  -9,002
  -9,367
  -9,756
  -10,170
  -10,608
  -11,073
  -11,565
  -12,086
  -12,636
  -13,216
  -13,829
  -14,475
  -15,156
  -15,873
  -16,629
  -17,424
  -18,262
  -19,143
  -20,070
  -21,045
Total debt, $m
  15,695
  13,088
  14,136
  15,334
  16,680
  18,170
  19,806
  21,586
  23,514
  25,591
  27,820
  30,204
  32,749
  35,458
  38,337
  41,392
  44,629
  48,056
  51,681
  55,510
  59,553
  63,819
  68,318
  73,061
  78,058
  83,320
  88,861
  94,693
  100,830
  107,287
  114,078
Total liabilities, $m
  48,181
  45,574
  46,622
  47,820
  49,166
  50,656
  52,292
  54,072
  56,000
  58,077
  60,306
  62,690
  65,235
  67,944
  70,823
  73,878
  77,115
  80,542
  84,167
  87,996
  92,039
  96,305
  100,804
  105,547
  110,544
  115,806
  121,347
  127,179
  133,316
  139,773
  146,564
Total equity, $m
  31,448
  18,978
  19,415
  19,914
  20,474
  21,095
  21,776
  22,517
  23,320
  24,185
  25,113
  26,106
  27,166
  28,294
  29,493
  30,765
  32,113
  33,540
  35,050
  36,644
  38,328
  40,104
  41,978
  43,953
  46,034
  48,225
  50,533
  52,961
  55,517
  58,206
  61,034
Total liabilities and equity, $m
  79,629
  64,552
  66,037
  67,734
  69,640
  71,751
  74,068
  76,589
  79,320
  82,262
  85,419
  88,796
  92,401
  96,238
  100,316
  104,643
  109,228
  114,082
  119,217
  124,640
  130,367
  136,409
  142,782
  149,500
  156,578
  164,031
  171,880
  180,140
  188,833
  197,979
  207,598
Debt-to-equity ratio
  0.499
  0.690
  0.730
  0.770
  0.810
  0.860
  0.910
  0.960
  1.010
  1.060
  1.110
  1.160
  1.210
  1.250
  1.300
  1.350
  1.390
  1.430
  1.470
  1.510
  1.550
  1.590
  1.630
  1.660
  1.700
  1.730
  1.760
  1.790
  1.820
  1.840
  1.870
Adjusted equity ratio
  0.251
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,161
  789
  830
  878
  931
  989
  1,052
  1,120
  1,194
  1,273
  1,358
  3,214
  3,310
  3,413
  3,522
  3,637
  3,760
  3,889
  4,026
  4,170
  4,322
  4,483
  4,652
  4,831
  5,019
  5,217
  5,425
  5,644
  5,875
  6,117
  6,373
Depreciation, amort., depletion, $m
  3,775
  3,462
  3,486
  3,514
  3,544
  3,579
  3,616
  3,657
  3,701
  3,749
  3,800
  1,436
  1,495
  1,557
  1,623
  1,693
  1,767
  1,846
  1,929
  2,016
  2,109
  2,207
  2,310
  2,418
  2,533
  2,654
  2,781
  2,914
  3,055
  3,203
  3,358
Funds from operations, $m
  4,468
  4,251
  4,317
  4,391
  4,475
  4,567
  4,668
  4,777
  4,895
  5,022
  5,158
  4,650
  4,805
  4,970
  5,145
  5,330
  5,527
  5,735
  5,954
  6,186
  6,431
  6,690
  6,962
  7,249
  7,552
  7,870
  8,205
  8,558
  8,930
  9,320
  9,731
Change in working capital, $m
  -490
  -128
  -151
  -172
  -193
  -214
  -235
  -256
  -277
  -298
  -320
  -342
  -365
  -389
  -413
  -439
  -465
  -492
  -520
  -550
  -581
  -613
  -646
  -681
  -717
  -756
  -796
  -837
  -881
  -927
  -975
Cash from operations, $m
  4,958
  4,379
  4,467
  4,563
  4,668
  4,781
  4,903
  5,033
  5,172
  5,320
  5,478
  4,993
  5,170
  5,359
  5,558
  5,769
  5,992
  6,227
  6,475
  6,736
  7,012
  7,302
  7,608
  7,930
  8,269
  8,626
  9,001
  9,396
  9,811
  10,247
  10,706
Maintenance CAPEX, $m
  0
  -1,021
  -1,044
  -1,068
  -1,096
  -1,127
  -1,161
  -1,198
  -1,239
  -1,283
  -1,331
  -1,382
  -1,436
  -1,495
  -1,557
  -1,623
  -1,693
  -1,767
  -1,846
  -1,929
  -2,016
  -2,109
  -2,207
  -2,310
  -2,418
  -2,533
  -2,654
  -2,781
  -2,914
  -3,055
  -3,203
New CAPEX, $m
  -3,280
  -214
  -226
  -258
  -290
  -321
  -352
  -384
  -415
  -447
  -480
  -514
  -548
  -583
  -620
  -658
  -697
  -738
  -781
  -825
  -871
  -919
  -969
  -1,021
  -1,076
  -1,134
  -1,193
  -1,256
  -1,322
  -1,391
  -1,463
Cash from investing activities, $m
  419
  -1,235
  -1,270
  -1,326
  -1,386
  -1,448
  -1,513
  -1,582
  -1,654
  -1,730
  -1,811
  -1,896
  -1,984
  -2,078
  -2,177
  -2,281
  -2,390
  -2,505
  -2,627
  -2,754
  -2,887
  -3,028
  -3,176
  -3,331
  -3,494
  -3,667
  -3,847
  -4,037
  -4,236
  -4,446
  -4,666
Free cash flow, $m
  5,377
  3,144
  3,197
  3,237
  3,283
  3,334
  3,390
  3,451
  3,518
  3,590
  3,667
  3,097
  3,186
  3,281
  3,381
  3,488
  3,601
  3,721
  3,848
  3,983
  4,125
  4,274
  4,432
  4,599
  4,774
  4,959
  5,154
  5,359
  5,575
  5,802
  6,041
Issuance/(repayment) of debt, $m
  170
  920
  1,048
  1,198
  1,345
  1,491
  1,635
  1,781
  1,928
  2,077
  2,229
  2,384
  2,544
  2,709
  2,879
  3,055
  3,238
  3,427
  3,624
  3,829
  4,043
  4,266
  4,499
  4,742
  4,997
  5,263
  5,541
  5,832
  6,137
  6,457
  6,791
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
  920
  1,048
  1,198
  1,345
  1,491
  1,635
  1,781
  1,928
  2,077
  2,229
  2,384
  2,544
  2,709
  2,879
  3,055
  3,238
  3,427
  3,624
  3,829
  4,043
  4,266
  4,499
  4,742
  4,997
  5,263
  5,541
  5,832
  6,137
  6,457
  6,791
Total cash flow (excl. dividends), $m
  3,518
  4,064
  4,245
  4,435
  4,628
  4,824
  5,025
  5,232
  5,445
  5,666
  5,896
  5,482
  5,730
  5,990
  6,260
  6,543
  6,839
  7,149
  7,473
  7,812
  8,168
  8,541
  8,931
  9,341
  9,771
  10,222
  10,695
  11,191
  11,712
  12,258
  12,832
Retained Cash Flow (-), $m
  2,087
  -350
  -437
  -499
  -560
  -621
  -681
  -742
  -803
  -865
  -928
  -993
  -1,060
  -1,128
  -1,199
  -1,272
  -1,348
  -1,427
  -1,509
  -1,595
  -1,684
  -1,777
  -1,874
  -1,975
  -2,081
  -2,192
  -2,307
  -2,429
  -2,556
  -2,689
  -2,828
Prev. year cash balance distribution, $m
 
  12,820
  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
 
  16,533
  3,809
  3,936
  4,068
  4,203
  4,344
  4,490
  4,643
  4,802
  4,968
  4,489
  4,671
  4,861
  5,061
  5,271
  5,491
  5,721
  5,963
  6,217
  6,484
  6,764
  7,058
  7,366
  7,690
  8,030
  8,388
  8,763
  9,156
  9,570
  10,004
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
 
  15,852
  3,487
  3,426
  3,349
  3,258
  3,153
  3,034
  2,902
  2,758
  2,604
  2,132
  1,993
  1,848
  1,699
  1,547
  1,395
  1,245
  1,098
  957
  824
  700
  586
  483
  392
  312
  245
  188
  142
  104
  75
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 is a provider of technology solutions. The Company’s segments include: Enterprise Group, Software, Financial Services and Corporate Investments. The Enterprise Group segment provides its customers with the technology infrastructure they need to optimize traditional information technology (IT). The Software segment allows its customers to automate IT operations to simplify, accelerate and secure business processes and drives the analytics that turn raw data into actionable knowledge. The Financial Services segment enables flexible IT consumption models, financial architectures and customized investment solutions for its customers. The Corporate Investments segment includes Hewlett Packard Labs and certain business incubation projects, among others.

FINANCIAL RATIOS  of  Hewlett Packard Enterprise (HPE)

Valuation Ratios
P/E Ratio 7.5
Price to Sales 0.5
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 4.8
Price to Free Cash Flow 14.2
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 38.7%
Total Debt to Equity 49.9%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 6.6%
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 19.2%.

Life of production assets of 9.4 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 -12.8%. 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 1624.51 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 $23.2 billion.

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COMPANY NEWS

▶ HP Enterprise Layoffs: HPE to Cut 5,000 Jobs   [11:41AM  InvestorPlace]
▶ HPE plans to slash 5,000 jobs, reports say   [10:00AM  American City Business Journals]
▶ [$$] Hewlett Packard Enterprise to Cut 10% of Workforce   [12:18AM  The Wall Street Journal]
▶ [$$] Hewlett Packard Enterprise to Cut 10% of Workforce   [Sep-21-17 11:11PM  The Wall Street Journal]
▶ Hewlett Packard Enterprise to cut 5,000 jobs: report   [08:00PM  San Jose Mercury News]
▶ HP Enterprise said to Cut 5,000 Jobs   [07:54PM  Bloomberg Video]
▶ HPE plans 5,000 job cuts: Bloomberg   [06:57PM  Reuters]
▶ 4 Things HPE Management Wants You to Know   [02:06PM  Motley Fool]
▶ Hewlett Packard Enterprise Closes Micro Focus Acquisition   [Sep-07-17 03:06PM  Market Realist]
▶ How Hewlett Packard Views Fiscal 4Q17 Now   [01:36PM  Market Realist]
▶ 3 big challenges for HPE's Whitman going forward   [Sep-06-17 05:45PM  American City Business Journals]
▶ [$$] HPE's Big Buyback to Support Stock   [03:15PM  Barrons.com]
▶ Hewlett Packard Enterprise spinoff update   [10:01AM  MarketWatch]
▶ Micro Focus Gains on HPE Software Earnings   [04:03AM  TheStreet.com]
▶ HP Enterprise Earnings: 5 Important Things to Know   [Sep-05-17 08:11PM  Fortune]
▶ [$$] HP Enterprise to Acquire Cloud Technology Partners   [05:59PM  The Wall Street Journal]
Financial statements 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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