DCF Studio

    HPE · NYQ · Technology

    Hewlett Packard Enterprise Company

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 2.90

    Market price

    USD 60.76

    Implied upside

    -95.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis model values the shares at 4.8% of the market price. A gap that size is a modelling failure rather than a view - most often an unusable beta, a currency or units mismatch, or a cashflow base that does not represent the business. Read the figures below as diagnostics, not as a call.

    Current EV/EBITDA of 22.6x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 2.90-95.2%
    Exit multiple
    USD 59.40-2.2%
    Market price
    USD 60.76

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn1bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 36.5bnUSD 38.8bnUSD 41.3bnUSD 43.9bnUSD 46.7bn+6.4%
    EBITUSD 2.7bnUSD 2.8bnUSD 3.0bnUSD 3.2bnUSD 3.4bn+6.4%
    NOPATUSD 2.4bnUSD 2.6bnUSD 2.7bnUSD 2.9bnUSD 3.1bn+6.4%
    Add depreciation & amortisationUSD 3.1bnUSD 3.3bnUSD 3.5bnUSD 3.8bnUSD 4.0bn+6.4%
    Less capital expenditureUSD -3.2bnUSD -3.4bnUSD -3.6bnUSD -3.9bnUSD -4.1bn+6.4%
    Less increase in working capitalUSD -1.5bnUSD -1.6bnUSD -1.7bnUSD -1.8bnUSD -1.9bn+6.4%
    Free cashflow to firmUSD 814.9mUSD 866.8mUSD 922.0mUSD 980.8mUSD 1.0bn+6.4%
    Discount factor0.95000.85740.77380.69840.6303-
    Present valueUSD 774.2mUSD 743.2mUSD 713.5mUSD 685.0mUSD 657.6m-4.0%
    Present Value Of The ForecastUSD 3.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.296Reported 1.442, pulled toward 1.0 (Blume)
    Cost of equity12.13%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 80.7bn77.0% of capital
    Total debtUSD 24.1bn23.0% of capital, book value as a proxy
    Tax rate9.2%Effective, capped at statutory
    WACC10.80%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 2.90

    84% of EV

    Forecast FCFF, final year
    USD 1.0bn
    Capex at depreciation, working capital in reinvestment
    USD 3.1bn
    Less reinvestment at g/ROIC (23.1% of NOPAT)
    USD -718.3m
    Capitalised
    USD 2.4bn
    ROIC (WACC floor)
    10.8%
    Terminal value, undiscounted
    USD 29.5bn
    Terminal value, discounted
    USD 18.6bn
    Enterprise value
    USD 22.1bn
    Less net debt
    USD 18.3bn
    Equity value
    USD 3.8bn

    Exit at 20.0x EBITDA

    Value per shareUSD 59.40

    96% of EV

    Terminal value, undiscounted
    USD 148.1bn
    Terminal value, discounted
    USD 93.4bn
    Enterprise value
    USD 97.0bn
    Less net debt
    USD 18.3bn
    Equity value
    USD 78.7bn

    Spread between methods: 181%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.80%7.497.587.687.777.86
    9.80%4.874.955.035.115.19
    10.80%2.762.832.902.963.03
    11.80%1.021.081.141.201.26
    12.80%-0.43-0.38-0.32-0.27-0.22

    Outlined: this model. Green text: above today's price of 60.76. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    EBIT margin7.3%26.5%+19.2pp
    Discount rate10.8%4.1%-6.7pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.