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NetApp's Q1 Looks Solid, But ELAs Create Confusion

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NetApp's Q1 Looks Solid, But ELAs Create Confusion
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NetApp Inc. (NASDAQ: NTAP) reported a first-quarter earnings beat Wednesday, and second-quarter guidance fell relatively in-line with consensus estimates.

Wall Street Weighs In

  • Deutsche Bank analyst Sherri Scribner maintained a Sell rating on NetApp and raised the price target from $43 to $60.
  • Stifel analyst Matthew Sheerin maintained a Buy rating with a $91 price target.
  • Raymond James analyst Simon Leopold maintained a Market Perform rating.
  • Morgan Stanley analyst Katy Huberty maintained an Equal-weight rating and raised the price target from $65 to $70.

The Thesis 

Despite beating expectations in the first quarter, Deutsche Bank’s Scribner said NetApp's beat in the quarter came largely due to enterprise license agreements that drove $60 million of sales upside against management’s expectations.

Given the number of moving parts in the quarter, it’s hard to parse how much of the upside was driven by ELAs versus real fundamental improvement in the business, the analyst said. 

Stifel's Sheerin said that even with the ELA boost, product revenue grew 12 percent year-over-year and all-flash array revenue increased 50 percent year-over-year.

“NetApp expects the transition to all-flash storage to accelerate in coming quarters as flash memory pricing declines. In addition, NTAP is seeing nice early traction with its cloud software business, which it expects to generate $400 million to $600 million by fiscal year 2021,” the analyst said. 

Raymond James analyst Leopold said Q1 results look good, but ELAs create confusion for NetApp.

“NetApp’s execution seems solid, with unexpected strength from mature products. However, upside also came from unexpected and unpredictable enterprise license agreements; the uncertainty likely fuels debate.”

Morgan Stanley's Huberty said the contribution from ELAs is lumpy, but customers committing to the platform long-term are a positive worth noting.

NetApp shares were down nearly 4 percent on Thursday, closing at $79.51. The stock was set to open Friday's session down 0.19 percent. 

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Latest Ratings for NTAP

DateFirmActionFromTo
Aug 2018BMO CapitalMaintainsOutperformOutperform
Aug 2018Deutsche BankMaintainsSellSell
Aug 2018Maxim GroupMaintainsBuyBuy

View More Analyst Ratings for NTAP
View the Latest Analyst Ratings

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