Stock Analysis on Net
Stock Analysis on Net

Hewlett Packard Enterprise Co. (NYSE:HPE)

This company has been moved to the archive! The financial data has not been updated since June 5, 2024.

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Hewlett Packard Enterprise Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.64%
01 FCFE0 1,986
1 FCFE1 2,074 = 1,986 × (1 + 4.41%) 1,793
2 FCFE2 2,180 = 2,074 × (1 + 5.12%) 1,630
3 FCFE3 2,307 = 2,180 × (1 + 5.82%) 1,492
4 FCFE4 2,457 = 2,307 × (1 + 6.53%) 1,374
5 FCFE5 2,635 = 2,457 × (1 + 7.23%) 1,274
5 Terminal value (TV5) 33,591 = 2,635 × (1 + 7.23%) ÷ (15.64% – 7.23%) 16,242
Intrinsic value of Hewlett Packard Enterprise Co. common stock 23,804
 
Intrinsic value of Hewlett Packard Enterprise Co. common stock (per share) $18.32
Current share price $19.48

Based on: 10-K (reporting date: 2023-10-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Hewlett Packard Enterprise Co. common stock βHPE 1.20
 
Required rate of return on Hewlett Packard Enterprise Co. common stock3 rHPE 15.64%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rHPE = RF + βHPE [E(RM) – RF]
= 4.67% + 1.20 [13.79% – 4.67%]
= 15.64%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Hewlett Packard Enterprise Co., PRAT model

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Average Oct 31, 2023 Oct 31, 2022 Oct 31, 2021 Oct 31, 2020 Oct 31, 2019 Oct 31, 2018
Selected Financial Data (US$ in millions)
Cash dividends declared 619 621 625 464 601 733
Net earnings (loss) attributable to HPE 2,025 868 3,427 (322) 1,049 1,908
Net revenue 29,135 28,496 27,784 26,982 29,135 30,852
Total assets 57,153 57,123 57,699 54,015 51,803 55,493
Total HPE stockholders’ equity 21,182 19,864 19,971 16,049 17,098 21,239
Financial Ratios
Retention rate1 0.69 0.28 0.82 — 0.43 0.62
Profit margin2 6.95% 3.05% 12.33% -1.19% 3.60% 6.18%
Asset turnover3 0.51 0.50 0.48 0.50 0.56 0.56
Financial leverage4 2.70 2.88 2.89 3.37 3.03 2.61
Averages
Retention rate 0.57
Profit margin 5.15%
Asset turnover 0.52
Financial leverage 2.91
 
FCFE growth rate (g)5 4.41%

Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).

2023 Calculations

1 Retention rate = (Net earnings (loss) attributable to HPE – Cash dividends declared) ÷ Net earnings (loss) attributable to HPE
= (2,025 – 619) ÷ 2,025
= 0.69

2 Profit margin = 100 × Net earnings (loss) attributable to HPE ÷ Net revenue
= 100 × 2,025 ÷ 29,135
= 6.95%

3 Asset turnover = Net revenue ÷ Total assets
= 29,135 ÷ 57,153
= 0.51

4 Financial leverage = Total assets ÷ Total HPE stockholders’ equity
= 57,153 ÷ 21,182
= 2.70

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.57 × 5.15% × 0.52 × 2.91
= 4.41%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (25,318 × 15.64% – 1,986) ÷ (25,318 + 1,986)
= 7.23%

where:
Equity market value0 = current market value of Hewlett Packard Enterprise Co. common stock (US$ in millions)
FCFE0 = the last year Hewlett Packard Enterprise Co. free cash flow to equity (US$ in millions)
r = required rate of return on Hewlett Packard Enterprise Co. common stock

FCFE growth rate (g) forecast

Hewlett Packard Enterprise Co., H-model

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Year Value gt
1 g1 4.41%
2 g2 5.12%
3 g3 5.82%
4 g4 6.53%
5 and thereafter g5 7.23%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 4.41% + (7.23% – 4.41%) × (2 – 1) ÷ (5 – 1)
= 5.12%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 4.41% + (7.23% – 4.41%) × (3 – 1) ÷ (5 – 1)
= 5.82%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 4.41% + (7.23% – 4.41%) × (4 – 1) ÷ (5 – 1)
= 6.53%