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NetApp Inc. NTAP shares are up 7 percent in the last three months, even after hitting a low of $28.95 on September 29.
- UBS analyst Steven Milunovich downgraded the company from Neutral to Sell, while reducing the price target from $34 to $30.
- While the company’s shares have climbed, there are continued market and competitive concerns, Milunovich said.
Analyst Steven Milunovich expected the softness in the storage market to continuing, despite being down 4 percent last quarter.
While NetApp's innovation appears to be lagging, competition is stiffening, from start-ups, merging giants, and the cloud. “Our latest VAR Storage reflects continued weakness for NetApp,” Milunovich wrote, adding that net sales strength in the September quarter was down sequentially.
“All FAS products scored below zero on a strong-weak scale. NetApp's FlashRay all-flash offering is still not generally available. Most concerning, the Dec quarter outlook registered the lowest score ever,” the UBS report stated.
Gartner has lowered NetApp in its Magic Quadrant rating. Although Cluster Mode has exited and new CEO George Kurian is redeploying resources, this could prove to be insufficient.
Milunovich believes that Dell’s acquisition of EMC Corporation EMC could create opportunities for NetApp in the near term. He added, however, that selling EMC products through Dell's channels would adversely impact NetApp in the long term.
“In addition, given NetApp filers popularity for email, we think the company is vulnerable to Microsoft's Office 365,” the analyst commented.
UBS projected a 5 percent decline in revenue in F16 to $5.8bn and a 16 percent decline in EPS. For F17, a 3 decline in revenue is expected, taking the EPS estimate below consensus at $2.55.
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