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NetApp (NTAP) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

NetApp Inc. NTAP is scheduled to report third-quarter fiscal 2019 results on Feb 13.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters recording average positive earnings surprise of 12.8%.

In the last reported quarter, NetApp delivered non-GAAP earnings of $1.06 per share, beating the Zacks Consensus Estimate by 7 cents. The figure also surged 32.5% from the year-ago period and was within management’s guided range.

The company delivered second-quarter fiscal 2019 revenues of $1.517 billion, improving 7.2% on a year-over-year basis. The figure also beat the Zacks Consensus Estimate of $1.511 billion.

Robust adoption of company’s expanding product portfolio and increasing deal wins across varied geographies drove year-over-year growth.





Notably, NetApp stock has returned 21.6% in the past year, compared with industry’s decline of 8.7%.

Guidance & Estimates

For third-quarter fiscal 2019, NetApp expects non-GAAP earnings between $1.12 and $1.18 per share.

The Zacks Consensus Estimate for the quarter under review is pegged at $1.15, reflecting year-over-year increase of approximately 16.2%.

Net revenues are anticipated to be in the range of $1.55-$1.65 billion. The Zacks Consensus Estimate is pegged at $1.602 billion, indicating growth of approximately 5.2% from the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

NetApp’s transition to data fabric strategy (a software-defined approach to data management) has been a key catalyst behind increasing Enterprise License Agreement (“ELA”) wins.

Further, growing momentum of its hyper-converged infrastructure (HCI) solutions from enterprises undergoing digital transformation is anticipated to favor the top line in the to-be-reported quarter. Expanded new cloud partnerships and open source projects are other tailwinds.

Notably, in the last reported quarter, the company’s all-flash array business surged 29% on a year-over-year basis. Its annualized net revenue run rate was $2.2 billion. The cloud data services recorded a run-rate of $27 million.

Moreover, NetApp’s expertise in the all-flash array business is aiding its popularity in storage area network (“SAN”), which in turn is anticipated to bolster product revenues. Synergies from strategic enterprise agreements are expected to benefit segment results.

Notably, the Zacks Consensus Estimate for product revenues is estimated to be $995 million, up from the year-ago reported figure of $920 million.

Additionally, NetApp is increasingly focused on strengthening its hybrid cloud domain with new capabilities.

Notably, at NetApp Insight Barcelona 2018 event, the company recently unveiled new data offerings including expanded availability of NetApp Cloud Volumes for Google Cloud Platform (“GCP”), Microsoft Azure NetApp Files preview among others, to enable users to innovate in the robust cloud platforms.

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

NetApp’s converged infrastructure capabilities continue to expand post StackPointCloud buyout. The new NetApp Kubernetes Service (“NKS”) designed for multi-cloud deployments supports cloud-based stack for leading cloud platforms, including the likes of Amazon Web Services ("AWS"), Azure, GCP, and the company’s NetApp HCI platform.

The company also announced open source project —Trident. The new NKS along with Trident are aimed at assisting software developers to create and deploy robust applications on leading cloud and private cloud platforms by leveraging the company’s high performance broad-based storage portfolio.

The aforementioned factors are expected to aid the financial performance in the third quarter.

However, declining OEM revenues, overall tough macroeconomic scenario and competition from bellwethers such as HP Inc., and IBM in the SAN market remain concerns.

NetApp, Inc. Price and EPS Surprise

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

What Our Model Says

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.

NetApp has a Zacks Rank #4 (Sell) and an Earnings ESP of +0.15%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks that Warrant a Look

Here are some stocks you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Portland General Electric Company POR has an Earnings ESP of +4.19% and a Zacks Rank #1. The company is slated to report fourth-quarter 2018 earnings on Feb 15. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ameren Corporation AEE has an Earnings ESP of +1.68% and a Zacks Rank #1. The company is set to report fourth-quarter earnings on Feb 14.

ALLETE Inc ALE has an Earnings ESP of +5.26% and a Zacks Rank #2. The company is scheduled to report fourth-quarter 2018 results on Feb 14.

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