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Factors Setting the Tone for NetApp (NTAP) in Q2 Earnings

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Factors Setting the Tone for NetApp (NTAP) in Q2 Earnings

NetApp (NTAP) second-quarter results are likely to benefit from ongoing transition of product mix to growth oriented sectors like all-flash arrays and hybrid cloud.

NetApp Inc. NTAP is scheduled to report second-quarter fiscal 2019 results on Nov 14.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 15.3%.

In the last reported quarter, NetApp delivered non-GAAP earnings of 1.04 per share, beating the Zacks Consensus Estimate of 80 cents. The figure surged 67.7% on a year-over-year basis and was also above the guided range.

The company delivered first-quarter fiscal 2018 revenues of $1.47 billion, improving 12% on a year-over-year basis. The figure also beat the Zacks Consensus Estimate of $1.42 billion.

Robust product adoption, increasing deal wins, and expanding customer base across varied geographies drove year-over-year growth.

What to Expect?

For second-quarter fiscal 2019, NetApp expects non-GAAP earnings in the range of 94 cents to $1.00 per share.

We note that the Zacks Consensus Estimate has witnessed upward revision over the past 30 days. The Zacks Consensus Estimate for the quarter under review is pegged at 99 cents, reflecting a year-over-year increase of approximately 22.2%.

Net revenues are anticipated to be in the range of $1.45-$1.55 billion, implying growth of 6% at the mid-point from the year-ago quarter. The Zacks Consensus Estimate is pegged at $1.51 billion, indicating growth of approximately 6.3% from the year-ago quarter.

Favourable ESP

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NetApp has a Zacks Rank #1 and an Earnings ESP of +0.83% which makes us reasonably optimistic regarding an earnings surprise.

NetApp, Inc. Price and EPS Surprise

NetApp, Inc. Price and EPS Surprise | NetApp, Inc. Quote

Factors Driving Q2 Results

NetApp is increasingly focused on strengthening its hybrid cloud domain with new capabilities. In a bid to release Kubernetes service, the company recently acquired StackPointCloud, a provider of cloud-based Kubernetes as-a-service (“KaaS”) for an undisclosed amount.

The new NetApp Kubernetes service designed for multi-cloud deployments, supports cloud-based stack for leading cloud platforms, comprising Amazon’s AMZN Amazon Web Services, Microsoft’s MSFT Azure, Google Cloud, and company’s hyper converged infrastructure (“HCI”)   NetApp HCI.

Moreover, the company’s transition to data fabric strategy (a software-defined approach to data management) is expanding business opportunities. In an effort to extend the utilization of NetApp Data Fabric, the company recently unveiled new data services and FlexPod solutions to enable enterprises capitalize on the potential of artificial intelligence (AI).

NetApp Cloud Volumes was recently selected by WuXiNextCODE to enable management and seamless deployment of data driven applications, which is a positive.

The company partnered with DreamWorks in a bid to develop a robust IT infrastructure and data services leveraging NetApp’s Data Fabric.

NetApp’s expertise in the flash array market is aiding its popularity in storage area network (“SAN”), which in turn is anticipated to boost product revenues. The company’s hyper-converged infrastructure is also anticipated to be a positive for the top line, going forward.

Notably, the Zacks Consensus Estimate for product revenues is estimated to be $902 million, up from the year-ago reported figure of $807million.

The company also launched NetApp ONTAP AI proven architecture, which accelerates accessibility to data as per the scale and speed requirements of AI. The architecture leverages NVIDIA DGX supercomputers. The new services are likely to generate incremental revenues, going forward.

Further, adoption of company’s differentiated product portfolio and strong distribution channels are expected to bolster the topline.

Another Stock to Consider

Here is another stock, which, as per our model, also has the right combination of elements to post an earnings beat this quarter:

GW Pharmaceuticals GWPH has an Earnings ESP of +3.27% and a Zacks Rank #1. The company is slated to report fourth-quarter fiscal 2018 earnings on Nov 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

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