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HP Enterprise Stock Off; Goldman Cuts to Sell on IT-Outlays Outlook

Hewlett Packard Enterprise is down as Goldman Sachs sees a weakening U.S. IT-spending environment.
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Hewlett Packard Enterprise  (HPE) - Get Hewlett Packard Enterprise Co. Report shares were lower on Friday after Goldman Sachs downgraded the information-technology products and services company to sell from neutral and cut its price target to $14 from $16.

Shares of the Houston company at last check were down 6.9% to $14.85.

Analyst Rod Hall said in a research note that his predictive analytics model continues to indicate a weakening U.S. IT-spending environment late this year and into early 2022, according to the Fly. 

The analyst cited a declining DRAM pricing environment, which has been a negative for server prices. 

In addition, Hall said that while a potentially significant backlog could offset some of these headwinds in the near term, plus some added upside from the exercise of the H3C put option, he sees that as a "less likely" scenario.

The analyst said both Dell  (DELL) - Get Dell Technologies Inc Class C Report and Cisco  (CSCO) - Get Cisco Systems, Inc. Report are better choices for investors interested in the enterprise-IT-hardware sector, according to StreetInsider.

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Last month at its virtual securities analyst meeting, HP Enterprise said it expected fiscal year 2022 net income of $1.24 to $1.38 a share.

The company also said it expected to return at least 60% of free cash flow to shareholders, including about $625 million in dividends and at least $500 million of share repurchases.

Hewlett Packard Enterprise also forecast a compounded annual revenue growth rate of 2% to 4%, adjusted for currency, for fiscal year 2022 to 2024.

In September, the company topped fiscal-third-quarter earnings expectations but its guidance reflected continue supply-chain concern.

Chief Executive Antonio Neri told Bloomberg at the time that "there is no question that supply continues to be a challenge and will continue to be for the next couple of quarters."

Hewlett Packard Enterprise is scheduled to report fourth-quarter results on Nov. 30.