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NetApp (NTAP) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

NetApp Inc. NTAP is scheduled to report fourth-quarter fiscal 2019 results on May 22.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 11.4%.

Past-Quarter Performance

In the last reported quarter, NetApp delivered non-GAAP earnings of $1.20 per share, beating the Zacks Consensus Estimate by 5 cents. The figure also improved 14.3% from the year-ago period.

Revenues of $1.563 billion was up 1.6% from the year-ago quarter but lagged the Zacks Consensus Estimate of $1.602 billion.

What to Expect in Q4?

For fourth-quarter fiscal 2019, NetApp expects non-GAAP earnings between $1.22 and $1.28 per share. Moreover, net revenues are anticipated to be in the range of $1.59-$1.69 billion. Management anticipates revenues to be flat at mid-point year over year, including 200 bps impact of exchange rate fluctuations.

The Zacks Consensus Estimate for revenues is pegged at $1.65 billion, indicating improvement of approximately 0.4% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained unchanged in the past week. The Zacks Consensus Estimate for the quarter under review is pegged $1.25 per share, suggesting growth of around 19.1% from the year-ago quarter’s tally.

Notably, NetApp stock has returned 16.8% on a year to date basis, outperforming the industry’s rally of 13.5%.

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

Factors at Play

Robust adoption of the company’s expanding product portfolio and increasing deal wins across varied geographies is expected to drive the upcoming quarterly results.

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.

Moreover, strength in company’s all-flash array business and adoption of private cloud solutions is expected aid fourth-quarter results.  In the last reported quarter, the company’s all-flash array business surged 19% on a year-over-year basis.

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 $1.03 billion, up slightly from the year-ago reported figure of $1.01 billion.

The company is also expected to benefit from the market transition from traditional IT infrastructure to private cloud architecture on the back of NetApp ACI and SolidFire. This in turn will aid the to-be-reported quarter’s results.

We believe increasing allegiance to adoption of hybrid cloud from an on-premises infrastructure is expected to favor NetApp’s financial performance in to-be-reported quarter and ahead.

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

In an effort to extend the utilization of NetApp Data Fabric, the company announced ONTAP 9.5, MAX Data, Storage GRID SG6060, NetApp Solution Support for FlexPod, and Flash Performance Guarantee solutions. These are likely to aid the upcoming quarterly results.

The company strengthened alliances with the likes of VMware, NVDIA, among others, by introducing VMware Validated Design for Private Cloud, NetApp HCI and NVIDIA GPUs, to mention a few.

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

However, uncertain macroeconomic environment and currency headwinds are expected to limit revenue growth and margin expansion.

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.

NetApphas a Zacks Rank #3 and an Earnings ESP of 0.00%. This combination makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Target Corporation TGT has an Earnings ESP of +0.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advance Auto Parts, Inc. AAP has an Earnings ESP of +2.41% and a Zacks Rank #3.

NIKE, Inc. NKE has an Earnings ESP of +2.13% and a Zacks Rank #3.

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