Baird Upgrades NetApp As The Company Has Developed Into A Key Consolidation Asset

• NetApp Inc. NTAP shares have lost 20 percent year-to-date, declining steadily through the months.
• Baird's Jayson Noland upgraded the company from Neutral to Outperform, while raising the price target from $35 to $40.
• The cTAP program has boosted sentiment, NetApp has developed into a key consolidation asset and its stock valuation is currently attractive, Noland said.

Analyst Jayson Noland said, “To our surprise, NetApp was recently cited as the No. 2 best positioned legacy storage provider in our partner survey behind EMC.” The company’s FlexPod solution was cited as a leader in the hardware category.

Noland believes that the cTAP program is “a key reason” for improved sentiment. Launched in 2012, cTAP is a transition program for clustered ONTAP, known as cDOT, and offers NetApp’s partners substantial financial benefits to help customers migrate to cDOT.

Media reports mention a formal bid by Dell for EMC as well as Juniper hiring bankers to sell the company. “NetApp has had its challenges of course, but the company will likely be viewed as a key asset if IT industry consolidation actually starts to materialize,” the Baird report stated.

Noland believes that investor sentiment is currently low and NetApp's stock valuation is “attractive.” He added, “NTAP has ~$11/share net cash and the potential to generate as much as $3.00/share annual free cash flows. We believe strong and recurring free cash flow generation and continued share-holder friendly actions could help to support the stock despite fundamental challenges.”