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NetApp Analyst Roundup

Kevin Riley

NetApp Inc. (NASDAQ: NTAP) reported mixed earnings results Wednesday. The stock reacted adversely Thursday, trading at $41.01, down 2.93 percent.

After the earnings report, Brean Capital was one of the more bullish analysts. Below are highlights from several analyst notes following the earnings news along with current ratings and price targets.

Brean Capital - Buy, $47 price target

“We continue to believe NTAP’s solid balance sheet and cash flow generation will underpin a consistent capital return program beyond May ’15 (which is the expected completion date of NTAP’s $1B buyback program). Importantly, we believe NTAP’s ability to continue its aggressive capital return program backstops the company’s underlying business model of cultivating ONTAP adoption, expanding its Flash footprint, and managing costs responsibly. In fact, we believe new products announced at Insight (i.e. Cloud ONTAP), as well as the acquisition of SteelStore speak to the company’s focused cloud strategy. Our $47 TP is 12x our FY'16 EPS of $3.25 - excluding the ~$8 in net-cash we believe NTAP will maintain in FY’16.”

Credit Suisse - Neutral, $40 price target

“An acceleration in branded revenue, both actual and guided, commentary on high storage utilization, capacity growth, solid Fed, firming flash and a long-term vision in cloud point to the secular story for NetApp being intact. Meanwhile, still anemic growth, despite easing comps, lackluster IT budgets and firming cost base support the case. We see NetApp's long-term growth potential remaining depressed reflective of changing enterprise focus, commodity infrastructures, and competitive pressure from EMC in mid-range and nimble startups and await indications of hybrid cloud traction.”

Deutsche Bank - Hold, $40 price target

“NTAP delivered upside to EPS this quarter, but guided lower than expected driven by FX headwinds and slower sales in branded. The company did a good job of improving GM’s in the Q and modestly raised full-year GM expectations. Mgmt maintained full-year revenue guidance but trimmed branded revenue growth driven by a shift in revenue mix. We have tweaked our estimates between quarters but left our FY numbers unchanged. We are also introducing FY-17 estimates. We view NTAP's growth as challenged by the secular changes in IT and view current multiples as fair given headwinds.”

Lake Street - Hold, $40 price target

“NetApp has an excellent installed base and good management, but there appears to be at least a temporary lull in demand for its state of the art products. The twin challenges of weak federal and weak OEM have combined with a tepid macro that has the company playing defense. While we like the company's clustered storage technology and virtualization-friendly architecture, and we see it as a market share gainer, we still must face the reality of flat to low single digit branded product sales. We believe revenue outperformance in the near term is possible, but the mid-term outlook is captured by average branded revenue growth of 1 percent over the trailing 12 months.”

Wells Fargo - Market Perform, $37 to $41 valuation range

“NTAP’s gross margin performance was the bright spot in the quarter--product gross margin was 58.4 percent vs our forecast of 57.3 percent--offsetting lower-than-expected revenue to achieve EPS in line with our estimate. This is worthy of noting given mix of lower margin OEM was higher-than-expected and given our concerns with regard to competitive pressures. From a secular challenge perspective, we believe management has done a good job with messaging its strategy to attack the cloud market though our primary concern is with the potential P&L transition. While gross margin strength is a good sign (if it’s not accounting related), branded revenue growth guide was lowered and, while perhaps not a surprise, is still worthy of keeping a watchful eye on.”

Latest Ratings for NTAP

Date Firm Action From To
Nov 2014 Brean Capital Maintains Buy
Nov 2014 Standpoint Research Downgrades Buy Hold
Oct 2014 Jefferies Initiates Coverage on Hold

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