Barclays Lowers NetApp's Target, Notes A Dark And Lonely Road In Storage

• Despite staging a small recovery last month, NetApp Inc. NTAP shares are down 25 percent since November 18.
• Barclays’ Mark Moskowitz maintained an Underweight rating for the company, while reducing the rpice target from $25 to $23.
• Moskowitz cited mixed results, weak guidance and concerns related to the storage market.

NetApp reported mixed results for the January quarter, with revenue of $1.39bn, representing a decline of 10.7 percent Y/Y, and EPS of $0.70, missing the Barclays and consensus estimates of $0.63. The company delivered a beat in gross margin, which came in at 63.1 percent, as compared to the Barclays estimate of 61.9 percent.

“Softer product revenue contributed to favorable margin mix, but it is not a good sign of the underlying business,” analyst Mark Moskowitz commented.

NetApp’s April quarter guidance points towards a “dark, lonely road ahead,” Moskowitz said. The company guided to revenue of $1.35-$1.50bn, representing a decline of 7.4 percent Y/Y decline at mid-point and missing the Barclays estimate of $1.47bn and consensus expectation of $1.51bn.

The guidance for non-GAAP EPS of $0.55-$0.60 was also short of the Barclays estimate of $0.68 and consensus expectation of $0.73.

“In our view, the magnitude of the earnings reset, alongside deteriorating product revenue growth, aggressive pricing, and more morale-busting job cuts (12% of workforce), suggests NetApp's struggles will persist,” Moskowitz wrote.

The analyst expressed concern regarding the storage market, saying that it could be negatively impacted by “high cloud displacement risk and tough pricing conditions, as vendors chase growth in flash-based solutions to counter challenges in legacy products.”

The EPS estimates for the current fiscal year and the next fiscal year have been reduced from $2.20 to $2.16 and from $2.44 to $2.18, respectively.