NetApp Sees A Return To Growth On The Horizon

NetApp Inc. NTAP reported strong Q2 results, with an earnings beat, and announced guidance for Q3 ahead of expectations.

Although the momentum in NetApp’s core business is improving, the company’s gross margins remain under pressure due to competition, Goldman Sachs’ Simona Jankowski said in a report.

Jankowski maintained a Neutral rating with a price target of $36. She raised EPS estimates for FY 2017 from $2.35 to $2.65.

Results And Guidance

NetApp reported Q2 revenue at $1.34 billion, versus Goldman Sachs’ estimate of $1.38 billion and the Street’s $1.35 billion. Non-GAAP EPS came in at $0.60, significantly better than Goldman Sachs’ estimate of $0.56 and the Streets $0.54.

The company guided to Q3 sales of $1.325-$1.475 billion, versus Goldman Sachs’ prior estimate of $1.39 billion and the Street’s $1.36 billion. EPS guidance came in at $0.72-$0.77, markedly higher than Goldman Sachs’ prior estimate of $0.64 and the Street’s $0.65.

Both results and guidance highlighted a stabilizing business, after the sharp decline during 2015 and the first half of 2016.

“The company’s all-flash array business has been a meaningful driver of the improvement, with NetApp rapidly moving from laggard to leader,” Jankowski stated.

“While we recognize the improving momentum within NetApp’s core business, we remain Neutral given a hyper-competitive storage market backdrop that continues to weigh on Product GMs (-360bps yoy),” the analyst added.