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NetApp, Inc. Just Recorded A 28% EPS Beat: Here's What Analysts Are Forecasting Next

Simply Wall St

Investors in NetApp, Inc. (NASDAQ:NTAP) had a good week, as its shares rose 4.3% to close at US$61.98 following the release of its second-quarter results. It looks like a credible result overall - although revenues of US$1.4b were what analysts expected, NetApp surprised by delivering a profit of US$1.03 per share, an impressive 28% above what analysts had forecast. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.

See our latest analysis for NetApp

NasdaqGS:NTAP Past and Future Earnings, November 15th 2019

After the latest results, the consensus from NetApp's 26 analysts is for revenues of US$5.65b in 2020, which would reflect a small 2.0% decline in sales compared to the last year of performance. Earnings per share are expected to sink 13% to US$3.56 in the same period. In the lead-up to this report, analysts had been modelling revenues of US$5.65b and earnings per share (EPS) of US$3.43 in 2020. So the consensus seems to have become somewhat more optimistic on NetApp's earnings potential following these results.

Analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 7.0% to US$58.23. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic NetApp analyst has a price target of US$75.00 per share, while the most pessimistic values it at US$40.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

In addition, we can look to NetApp's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. One thing that stands out from these estimates is that, even though revenues are forecast to keep falling, the decline is expected to accelerate. Analysts have modelled a 2.0% decline next year, compared to a historical decline of 0.01% per annum for the past five years. Compare this with our data on other companies (with analyst coverage) in a similar industry, which in aggregate are forecast to see their revenue decline 5.1% per year. It seems clear that while revenues are expected to continue declining, analysts also expect the downturn to be more severe than that of the wider market.

The Bottom Line

The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards NetApp following these results. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for NetApp going out to 2022, and you can see them free on our platform here.

You can also see our analysis of NetApp's Board and CEO remuneration and experience, and whether company insiders have been buying stock.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.