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Hewlett Packard Prices Senior Notes Offerings Worth $1.1B


Hewlett Packard Enterprise Company HPE recently announced the pricing of senior notes offering worth $1.1 billion. Notes, carrying an interest rate equal to 2.1% per year, are set to mature in 2019. The offering is anticipated to close on Sep 20.

However, the company announced that the offering is not “registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws” and therefore, are “being offered only to “qualified institutional buyers” under Rule 144A of the Securities Act or, outside the United States, to persons other than “U.S. persons” in compliance with Regulation S under the Securities Act.”

Hewlett Packard intends to use the entire proceed from the aforementioned offerings for repayment of its two existing outstanding notes. While one is $750 million worth of senior notes carrying a coupon rate of 2.45%, the other is $350 million worth of floating rate notes, both being due in 2017.

Borrowing costs continue to be low, enabling companies to obtain easy financing. With the U.S. treasuries offering low rates, corporate bonds and borrowings from banks are now witnessing high demand. We believe these notes will provide financial flexibility to the company and propel long-term growth.

With the recent move, the company will be able to bring down its interest expenses as the new senior notes carry a lower coupon rate than the ones which are being repaid. It should be noted that the company’s interest expenses have been escalating due to mounting debt burden which will dampen its profitability.

During the first nine months of fiscal 2017, Hewlett Packard paid $260 million as interest expenses, which is 33.3% higher than what it had paid during the same period in fiscal 2015. Also, the company’s long-term debt (excluding current portion) increased to $14.5 billion at the end of third-quarter fiscal 2017 from $12.2 billion recorded at the end of fiscal 2016.

Although, the entire industry to which Hewlett Packard Enterprise belongs to has been underperforming, the stock is among the worst performers. During the year-to-date period, the stock has lost 42.3%, as compared with the loss of 18.7% incurred by industry.

Currently, Hewlett Packard carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader technology sector are FormFactor Inc. FORM, NVIDIA Corporation NVDA and Texas Instruments Incorporated TXN, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term expected EPS growth rates for FormFactor, NVIDIA and Texas Instruments are 16%, 10.3% and 9.6%, respectively.

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