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HPE Climbs on Barclays Upgrade on Bullish 'As-a-Service' Outlook

HPE was upgraded to overweight with a $20 price target by analysts at Barclays.
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Hewlett Packard Enterprise  (HPE) - Get Hewlett Packard Enterprise Co. Report was upgraded to overweight from equal weight by analysts at Barclays Tuesday who see the company's core server and storage business as stabilizing and moving to an "as-a-service" model. 

The firm also raised its price target by 25% to $20 from $16 per share, leading to a nearly 4% increase in the company's stock Tuesday morning. 

"HPE stock has been lagging the other deep value hardware names (HPQ and DELL), and we expect a catch-up," analyst Tim Long and his team said. 

"We believe HPE is well positioned to manage the Server and Storage market dynamics, and has solid growth opportunities in networking and high performance compute."

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The firm notes that HPE's transition to an as-a-service company is well under way, making its valuation low, especially considering its recent $2.2 billion cash infusion from its settlement with Oracle  (ORCL) - Get Oracle Corporation Report.

HPE's core server business accounts for 44% of its revenue and storage about 17%. While those markets have been under pressure as workloads have moved to the public cloud, but Barclays expects HPE to manage the transition well. 

The firm also identified HPE's Intelligent Edge data and AI businesses as a growth businesses. Those segments currently account for 12% and 11% of the company's revenue, respectively. 

"HPE is focused on driving growth and margin upside from the business. Management expects the HPC & AI segment to grow above market, and we think this should be Hewlthe highest growth segment going forward, with a large and growing pipeline of opportunities," Long said.