Hewlett Packard Enterprise CompanyHPENYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

⚠️Model Warnings

•Terminal value represents 86% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Buy

Fair Value: $171.00 per share(market-calibrated)

+672.7%

Upside to Fair Value

Current

$22.13

Pure Model

$197.37

Fair Value

$171.00

Bull Case

$269.75

Bear Case

$134.81

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

0.50%

Calibrated Growth

2.61%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $197.37.

What's Driving This Ratingfor HPE

↓

CapEx normalizing toward maintenance

Historical CapEx is 7.65% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$1.0B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 7.50% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $12.4B (20.41% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 18.78% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 61.96% indicates efficient cash generation. FCF reaches $10.6B by Year 10 (17.34% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.32

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.44%

Cost of Debt

Pre-tax Cost of Debt1.32%

Tax Rate21.00%

After-tax Cost of Debt1.04%

Equity Weight (E/V)56.71%

Debt Weight (D/V)43.29%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (56.71% × 10.44%) + (43.29% × 1.04%)

= 6.37%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$40.7B	$44.9B	$50.7B	$54.6B	$60.9B
EBIT	$3.1B	$3.4B	$5.6B	$8.8B	$12.4B
Tax	$642M	$707M	$1.2B	$1.8B	$2.6B
NOPAT	$2.4B	$2.7B	$4.4B	$6.9B	$9.8B
+ Depreciation	$3.1B	$3.4B	$3.8B	$4.1B	$4.6B
- Capex	$3.1B	$3.3B	$3.5B	$3.6B	$3.7B
- Δ NWC	$644M	$188M	$183M	$197M	$220M
Free Cash Flow	$1.7B	$2.6B	$4.6B	$7.3B	$10.6B
Discount Factor	0.940	0.831	0.734	0.649	0.539
Present Value	$1.6B	$2.2B	$3.3B	$4.7B	$5.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$10.6B

Terminal Growth Rate3.75%

WACC6.37%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$417.8B

PV of Terminal Value$225.2B

Exit Multiple Method

Year 10 EBITDA$17.1B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$477.6B

PV of Terminal Value$257.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$36.6B

PV of Terminal Value$225.2B

Enterprise Value$261.8B

(-) Net Debt$16.6B

Equity Value$245.2B

Shares Outstanding1.3B

Price per Share$185.19

Exit Multiple Method

PV of Projected FCFs$36.6B

PV of Terminal Value$257.5B

Enterprise Value$294.0B

(-) Net Debt$16.6B

Equity Value$277.4B

Shares Outstanding1.3B

Price per Share$209.54

Pure Model Fair Value

$197.37

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
4.37%	$260.40	$248.76	$237.68	$227.13	$217.08
5.37%	$216.32	$238.67	$237.68	$227.13	$217.08
6.37%	$173.31	$183.41	$197.37	$217.89	$217.08
7.37%	$145.50	$151.02	$158.06	$167.35	$180.17
8.37%	$125.23	$128.59	$132.67	$137.74	$144.22

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$134.81

509.2% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.65

Base Case

$197.37

791.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.32

Bull Case

$269.75

1118.9% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.12

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth18.78%

Year 3 Revenue Growth4.37%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin7.50%

Terminal EBIT Margin25.00%

Tax Rate21.00%

Historical Capex / Rev7.65%

Terminal Capex / Rev6.00%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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