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
-
Social Security Will Continue Sending Paper Checks, Reversing CourseThe Social Security Administration has backed off from plans to eliminate paper checks. However, it will only send checks in the mail as a matter of last resort.
-
Ask the Editor — Tax Questions on Four New Tax DeductionsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on four new tax deductions in the "One Big Beautiful Bill."
-
How Divorced Retirees Can Maximize Their Social Security Benefits: A Case StudySusan discovered several years after she filed for Social Security that she is eligible to receive benefits based on her ex-spouse's earnings record. This case study explains how her new benefits are calculated and what her steps are to claim some of the money she missed.
-
From Piggy Banks to Portfolios: A Financial Planner's Guide to Talking to Your Kids About Money at Every AgeFrom toddlers to young adults, all kids can benefit from open conversations with their parents about spending and saving. Here's what to talk about — and when.
-
I'm an Investment Pro: Here's How Alternatives Could Inject Stability and Growth Into Your PortfolioAlternative investments can often avoid the impact of volatility, counterbalancing the ups and downs of stocks and bonds during times of market stress.
-
Dow Bleeds Red Due to Big Blue: Stock Market TodaySix of the official GICS sectors were in the green, led by communications services, technology and energy stocks.
-
July Fed Meeting: Live Updates and CommentaryThe July Fed meeting could be a lively economic event, with Wall Street keyed into what Fed Chair Powell has to say about interest rates and President Trump.
-
A Contrarian Approach Pays Off for This Small-Cap FundSmall-cap stocks have been hit hard by tariff worries, but this T. Rowe Price fund has outperformed thanks to its manager's against-the-tide approach.
-
A Financial Planner's Guide to Unlocking the Power of a 529 Plan529 plans are still the gold standard for saving for college, especially for affluent families, though they are most effective when combined with other financial tools for a comprehensive strategy.
-
An Investment Strategist Takes a Practical Look at Alternative InvestmentsAlternatives can play an important role in a portfolio by offering different exposures and goals, but investors should carefully consider their complexity, costs, taxes and liquidity. Here's an alts primer.
