Will NetApp (NTAP) Miss Earnings Estimates? - Analyst Blog

NetApp, Inc. NTAP is set to report fourth-quarter 2014 results on May 21. The company delivered a positive earnings surprise of 3.57% in the third quarter. Let's see how things are shaping up for this announcement.

Factors this Past Quarter

NetApp reported mixed third-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line lagged the same. Although efficient cost management and share repurchase initiatives aided the bottom line, decline in original equipment manufacturer revenues lowered sales on a year-over-year basis.

We believe that strong demand for its storage operating system — Data ONTAP — and flash solutions to be a key driver for NetApp's revenues. The company's workforce reduction initiatives could also pave the way for operating cost rationalization that would support margins. Share buybacks should also lend support to the company's earnings.

Nonetheless, soft demand from the U.S. Federal agencies and constricted IT spending remain the headwinds. Competition from EMC Corp also poses a challenge for the company.

Earnings Whispers?

Our proven model does not conclusively show that NetApp is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. However, this is not the case here as elaborated below.

Negative Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. The Most Accurate estimate stands at 60 cents per share while the Zacks Consensus Estimate is pegged at 62 cents per share resulting in an ESP of -3.23%.

Zacks Rank: NetApp has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Intuit Inc. INTU, with Earnings ESP of +1.18% and a Zacks Rank #2 (Buy).

Best Buy Co., Inc. BBY, with Earnings ESP of +5.00% and a Zacks Rank #2.

Nimble Storage, Inc. NMBL, with Earnings ESP of +6.25% and a Zacks Rank #3 (Hold).

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