Shares of Hewlett Packard Enterprise Co (NYSE:HPE) rose some 3.09% to $18.87 Thursday afternoon after the Federal Reserve announced a 50-basis-point interest rate cut at its September Federal Open Market Committee (FOMC) meeting.
The unexpected 50 basis point rate cut signals a more aggressive approach to monetary easing, a move that could have significant implications for companies like Hewlett Packard Enterprise, particularly in the tech and enterprise services sector.
Why This Matters: HPE's business model depends on significant capital investment and long-term contracts with enterprise customers. Macroeconomic conditions, such as interest rates, inflation and access to capital, can influence global corporate IT spending and company revenue.
In a general sense, HPE's financial health and growth prospects are sensitive to changes in borrowing costs due to the capital-intensive nature of its business and its customers' reliance on financing for large-scale IT projects.
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HPE, like many large-cap tech companies, also frequently taps the debt markets to finance operations, acquisitions and capital expenditures. The Fed's rate cut reduces the cost of borrowing for HPE, which translates into lower interest expenses on its existing and future debt.
As of third-quarter 2024, HPE had roughly $11.3 billion in total debt, and lower interest rates could result in significant savings on its interest payments, improving its profit margins and bottom line.
What Else: Many of HPE's enterprise customers also finance large IT infrastructure projects through borrowing. Lower interest rates reduce the cost of financing for these customers, making it easier for them to invest in HPE's high-margin products and services.
A more aggressive rate-cut cycle, as indicated by the Fed's updated dot plot projections, could spur corporate spending on critical IT infrastructure, further boosting HPE's revenue growth.
The Federal Reserve's updated projections, which forecast the federal funds rate to drop to 3.25%-3.5% by the end of 2025, could provide a clear runway for continued easing. For Hewlett Packard Enterprise, this could result in a multi-year period of favorable conditions for internal financing and customer demand.
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How To Buy HPE Stock
Besides going to a brokerage platform to purchase a share – or fractional share – of stock, you can also gain access to shares either by buying an exchange traded fund (ETF) that holds the stock itself, or by allocating yourself to a strategy in your 401(k) that would seek to acquire shares in a mutual fund or other instrument.
For example, in Hewlett Packard's case, it is in the Information Technology sector. An ETF will likely hold shares in many liquid and large companies that help track that sector, allowing an investor to gain exposure to the trends within that segment.
According to data from Benzinga Pro, HPE has a 52-week high of $22.82 and a 52-week low of $14.46.