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Analysts Weigh In On NetApp's Weak Q4, Stay Largely Bullish Chances Of Inflection

Analysts Weigh In On NetApp's Weak Q4, Stay Largely Bullish Chances Of Inflection

NetApp Inc. (NASDAQ: NTAP) reported after the market close Wednesday with below-consensus fourth-quarter earnings and issued a downbeat forecast for the first quarter.

The company's third-quarter earnings report issued in February was also weak.

The Analysts

Credit Suisse analyst Matthew Cabral maintained an Outperform rating on NetApp and lowered the price target from $89 to $79.

Bank of America Merrill Lynch analyst Wamsi Mohan reiterated a Buy rating and reduced the price target from $78 to $74.

Wells Fargo Securities analyst Aaron Rakers maintained a Market Perform rating and $70 price target.

Credit Suisse: Wider Storage Market Slows, But NetApp Poised to Outperform

NetApp attributed the fourth-quarter miss to an extension in sales cycles amid a cautious spending environment, Cabral said in a Thursday note.

Company-specific execution issues include the optimization of NetApp's go-to-market footprint, poor maintenance renewals and a sharp drop off in OEM revenue, the analyst said. 

NetApp expects growth to reaccelerate in the second half thanks to a ramp in its cloud offerings and cloud data services, as well as a return to more consistent execution on the base array business, he said. 

Yet the company's first-quarter guidance implies a rough start to the fiscal year, reflecting a choppy environment and tough comps, Cabral said. 

Citing NetApp's results and those of its competitors, Credit Suisse forecast a slowdown in the wider storage market following outsized growth in calendar 2018.

The sell-side firm said it's staying bullish due to the likelihood of NetApp gaining share; a likely inflection in high-margin Services revenue; and consistent cost discipline that could lead to margin expansion.

See also: What Wall Street Analysts Think About Dell's 'First' Earnings Report

BofA Lauds NetApp's Operational Discipline, Free Cash Flow

NetApp's shares are likely to come under pressure due to a deceleration in product revenue growth and a sub-linear trajectory to the long-term cloud-related revenue stream, Mohan said in a Wednesday note.

The analyst sees the company's ability to growth EPS on solid opex control and buybacks as well as its free cash flow delivery as positives.

BofA lowered its revenue and EPS estimates for the first quarter and fiscal 2020.

Wells Fargo: 2020 Guidance Aggressive

NetApp's guidance for growth acceleration through 2020 seems aggressive, Rakers said in a Wednesday note. 

The analyst is modeling below-guidance estimates for the company.

Wells Fargo noted better-than-expected all-flash revenue growth in the first quarter and a private cloud solutions business that hit a $600-million annualized run rate for the first time in the quarter.

"We continue to focus on NetApp’s cloud data services growth as part of the next phase of the company’s growth strategy," Rakers said. 

The Price Action

In pre-market trading Thursday, NetApp shares were trending down 9.09 percent to $61, its lowest level since mid-February.

Related Link: NetApp's Q1 Looks Solid, But ELAs Create Confusion

Photo via Wikimedia

Latest Ratings for NTAP

Jun 2021William BlairUpgradesMarket PerformOutperform
Jun 2021Morgan StanleyMaintainsOverweight
Jun 2021Loop CapitalMaintainsBuy

View More Analyst Ratings for NTAP
View the Latest Analyst Ratings


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