NetApp Upgraded Despite Near-Term Margin Weakness

But some among the Street found NetApp's earnings good enough to view the company more favorably. Credit Suisse's Kulbinder Garcha upgraded NetApp's stock rating from Underperform to Neutral with a price target boosted from $35 to $37.

According to Garcha, NetApp's report was "solid" and highlighted by a quarter-over-quarter and year-over-year growth in revenues to $1.48 billion and an earnings per share of $0.86, which was four cents better than expected. Also, the company reported an operating margin of 20.7 percent, which was better than the 19.2 percent he had expected.

Limited Downside

Garcha continued that while NetApp's revenue and EPS guidance fell short of expectations, there is reason to believe revenue can grow. The analyst noted that in the recent quarter, product revenue grew 12 percent year-over-year, and while this growth rate will decelerate moving forward, the relative balance of strategic offering at two-thirds of total product revenues versus mature offering at one-third implies revenue growth could be "more achievable."

Garcha further argued that although concerns over NetApp's growth profile remains, the analyst has confidence in the company's performance throughout the year, especially in improving operating margin performance.

As such, the analyst's $37 price target reflects a P/E of 10x on his fiscal 2019 earnings per share estimate and factors in the approximate $5 of fully taxed net cash for per share. As such, downside in the stock is "limited" at current levels.