Goldman Removes NetApp From 'Conviction Sell' List, Upgrades

Goldman Sachs’ Simona Jankowski mentioned that NetApp Inc. NTAP offers a balanced risk/reward, while expressing increased confidence in the company’s revenue stabilization.

Jankowski upgraded the rating on the company from Sell to Neutral, while raising the price target from $26 to $32.

Positive View

“Our more positive view is based on 1) improved positioning in the transition to all-flash, 2) better trends in the strategic product portfolio, which is now 61% of product revenues and should help offset mature revenue declines, and 3) ongoing cost reductions in COGS/opex,” the analyst explained.

Challenging Market

Jankowski continues to view the enterprise storage market as challenging, due to the market cannibalization driven by the move to cloud, as well as the disruption in industry economics due to the transition to flash.

The analyst expects industry revenues to decline 2 percent in 2016, following a similar decline in 2015.

Revenue Stabilization

However, with flash expected to rise to more than 30 percent of industry revenues in 2017, from 20 percent in 2016 and 11 percent in 2014, Jankowski believes this would begin to offset the declines in legacy disk, leading to industry revenue stabilization in 2017 and beyond.

NetApp has emerged as the second largest flash vendor over the last two quarters, with flash accounting 29 percent of the company’s product revenues and about 20 percent market share.

The analyst expects NetApp’s EPS to grow at CAGR of 9 percent during FY16-19, driven by improved traction in flash and cost cutting.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!