Analyst day for Hewlett Packard Enterprise (HPE), which will be October 18th, brings an astounding four activist funds to the fore, writes RBC Capital’s Amit Daryanani, and perhaps a big debate over what the company should do with nearly $7 billion in cash on its balance sheet.
Daryanani, who has a Sector Perform rating on the stock, and a $15 price target, writes that the meeting is set up for something of a showdown.
“Analyst day should be interesting,” he writes, “given there are four distinct activists engaged in the name and at the same time HPE is sitting on a pile of cash and hasn’t made explicit comments regarding the future usage.”
Following HP’s various divestitures and spin-mergers in the past year, Daryanani estimates “on an adjusted net cash basis,” the comapny will have around $6.5 billion in cash, or $4 per share.
He notes there’s a lot of activist cooks in the kitchen:
Based on recent SEC filings, the four activists collectively own ~2% of HPE’s shares (as of June 30), with Starboard holding the largest position (0.65% of shares), followed by JANA (0.64%), Third Point (0.43%), and Greenlight (0.27%). Notably, all four activists significantly added to their HPE positions since March. Both Starboard and JANA doubled their HPE positions since March while Third Point increased its stake by 1M shares and Greenlight initiated its position during the Jun- qtr.
The big choice may be between share buybacsk and M&A, notes Daryanani. His preference is for the latter: “While buybacks stand to provide some instant gratification, we think HPE is better off using the cash to bolster its portfolio and do selective acquisitions to strengthen its position in networking and/or adjacent markets.”
Today’s musings from Daryanani follow a report Thursday by Bloomberg saying Hewlett is looking to slash 5,000 jobs to better align its cost structure with the cloud computing era.
Hewlett stock today is up 29 cents, or 2%, at $14.55.