Deutsche Bank upgrades HPE on networking growth from Juniper, valuation

Investing.com -- Deutsche Bank upgraded Hewlett Packard Enterprise Co (NYSE:HPE) to "buy," given its attractive valuation and potential gains from its proposed acquisition of Juniper Networks (NYSE:JNPR). The brokerage has a price target of $25 on the stock.

HPE trades at 5 times its 2026 enterprise value-to-EBITDA estimates and 9 times earnings, well below peers in the hardware and networking sectors, Deutsche Bank (ETR:DBKGn) noted.

Even factoring in Juniper, which will boost Hewlett Packard Enterprise’s networking profits to over 40% of its total, the stock remains undervalued at 6 times EBITDA and 8 times EPS.

The $5 billion Juniper deal, expected to close in early 2025, brings scale to HPE's higher-margin networking business and offers significant cost synergies. Deutsche Bank expects the deal to boost earnings and free cash flow per share in the first year, with double-digit gains in the second.

“We view the proposed Juniper acquisition positively, given the newfound scale the deal brings HPE in higher-margin networking, alongside sizable cost synergies,” analyst says.

HPE's standalone operations are also improving, driven by stronger AI and server sales, as well as growth in hybrid cloud and its existing networking segment, the note added.

Deutsche Bank set a bull-case price target in the mid-$30s, with a downside scenario around $15, compared to HPE's current $20.58 level.