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Will NetApp, Inc.'s (NASDAQ:NTAP) Earnings Grow In The Year Ahead?

Simply Wall St

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Based on NetApp, Inc.'s (NASDAQ:NTAP) recently announced earnings update on 26 April 2019, it seems that analyst forecasts are fairly pessimistic, as a 7.8% fall in profits is expected in the upcoming year compared with the past 5-year average growth rate of 0.5%. With trailing-twelve-month net income at current levels of US$1.2b, the consensus growth rate suggests that earnings will decline to US$1.1b by 2020. Below is a brief commentary around NetApp's earnings outlook going forward, which may give you a sense of market sentiment for the company. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.

See our latest analysis for NetApp

How is NetApp going to perform in the near future?

The longer term expectations from the 27 analysts of NTAP is tilted towards the positive sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. To get an idea of the overall earnings growth trend for NTAP, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

NasdaqGS:NTAP Past and Future Earnings, July 12th 2019

This results in an annual growth rate of 0.4% based on the most recent earnings level of US$1.2b to the final forecast of US$1.1b by 2022. This leads to an EPS of $5.26 in the final year of projections relative to the current EPS of $4.6. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 19% to 16% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For NetApp, there are three key aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is NetApp worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether NetApp is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of NetApp? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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.