Hewlett Packard Enterprise (HPE) stock is trading notably lower Tuesday after the technology company announced a $1.35 billion convertible stock offering.
According to a filing with the Securities and Exchange Commission (SEC), HPE will offer 27 million shares of Series C Mandatory Convertible Preferred Stock to raise $1.35 billion, the company announced after the market closed on Monday. It will also grant underwriters a 30-day option to purchase up to an additional 3 million shares, which would allow it to raise an extra $150 million.
HPE said it will use the proceeds from the offering to fund all or a portion of its pending acquisition of Juniper Networks (JNPR), which was announced in January, and to pay related fees and expenses. If any capital is left over, the company said it would be used for general corporate purposes.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The news comes less than a week after HPE reported its fiscal third-quarter earnings results, in which it disclosed a 10% year-over-year rise in revenue to $7.7 billion and a 2% increase in its earnings per share (EPS) to 50 cents.
Why is Hewlett Packard stock lower?
Hewlett Packard stock is selling off on the news because when a company announces a stock offering, it often leads to a decline in its share price over concerns of dilution. A stock offering increases the number of shares available in the market and reduces the ownership percentage of existing shareholders. The dilution also negatively impacts a company's earnings per share since there are more shares outstanding.
A stock offering can also cause concern because it shows that the company needs additional capital and is willing to dilute existing shareholders to raise it.
Is HPE stock a buy, sell or hold?
Tuesday's decline has Hewlett Packard down nearly 6% for the year to date. Yet, Wall Street remains bullish on the tech stock.
According to S&P Global Market Intelligence, the average analyst target price for HPE stock is $20.96, representing implied upside of nearly 30% to current levels. Additionally, the consensus recommendation is Buy.
Financial services firm Argus Research is one of those with a Buy rating on the large-cap stock, along with a $26 price target.
"HPE has lagged the technology peer group for years based on slow EPS growth and even slower revenue growth," said Argus analyst Jim Kelleher in a September 6 note. "The stock trades at inexpensive current valuations, which, in our view, does not reflect potential for top- and bottom-line rejuvenation given the many ways in which HPE can participate in the artificial intelligence (AI) market.”
Argus' $26 price target sits nearly 60% above where HPE is currently trading.
Related Content
-
Could the Election Impact Interest Rates?The election can indirectly impact interest rates, but the Federal Reserve remains in the driver's seat when it comes to borrowing costs.
-
Interest Rate Cuts and Inflation: What's Really Going On?For more than two years, we've heard a steady drumbeat of news highlighting inflation and its impact on interest rates. The correlation seems clear, but the issue is actually more complex.
-
Could the Election Impact Interest Rates?
The election can indirectly impact interest rates, but the Federal Reserve remains in the driver's seat when it comes to borrowing costs.
-
Interest Rate Cuts and Inflation: What's Really Going On?
For more than two years, we've heard a steady drumbeat of news highlighting inflation and its impact on interest rates. The correlation seems clear, but the issue is actually more complex.
-
How to Make a Charitable Plan That Won't Break Your BankGiving back is great … if you have a plan that's as sustainable and smart as it is generous. Here are five tips for giving wisely.
-
This Double-Dip Trust Benefit Really Is Too Good to Be TrueLet's clear up the confusion among some trust makers and taxpayers over how grantor trust status affects the step-up in basis and estate tax exclusion.
-
How to Structure Retirement Income to Tamp Down TaxesFrom Social Security to IRAs and investments, with smart tax planning, retirees can have some control over how much of their income they'll get to keep.
-
5 Stocks to Buy for a Harris PresidencyThe race for the White House is heating up and these five stocks are set to benefit if Kamala Harris claims victory.
-
Four Key Elements of a Good Estate PlanAn estate plan can be complex or simple, depending on your estate and your wishes, but every estate plan should accomplish these basic goals.
-
Stock Market Today: Stocks Rise as Fed Rate Cuts NearThe main indexes closed out the day and week notably higher as excitement swirls ahead of next week's rate cut.
