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NetApp (NTAP) Rises More Than 2%: Can the Rally Continue?

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NetApp Inc.’s NTAP shares have added about 2.8% in yesterday’s trading session, outperforming the market.

NetApp stock has gained 42.7% in a year, substantially outperforming the 18.8% rally of the industry it belongs to.

Will the recent positive trend continue driving the stock over the long haul or is it due for a pullback? Before we discuss how investors and analysts have reacted as of late, let's take a quick look at the fundamentals and trends in order to get a better hold on the important drivers.

Growth Drivers

NetApp reported fiscal third-quarter 2018 non-GAAP earnings of 99 cents per share, beating the Zacks Consensus Estimate by 9 cents. The figure surged 20% on a year-over-year basis and was also above the guided range.

Revenues of $1.52 billion also increased 8% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $1.49 billion. Further, the figure was well within management’s guided range.

The impressive third-quarter results can be attributed to strong product adoption, increasing deal wins, and expanding customer base across varied geographies. Moreover, the company’s transition to data fabric strategy (a software-defined approach to data management) is expanding business opportunities.

NetApp also issued an impressive forthcoming outlook. For fourth-quarter fiscal 2018, the company expects non-GAAP earnings in the range of 95 cents to $1.03 per share. The Zacks Consensus Estimate for the current quarter was pegged at 90 cents.

Net revenues are anticipated to be in the range of $1.52 billion and $1.67 billion, which implies 8% growth at the midpoint from the year-ago quarter. The Zacks Consensus Estimate was pegged at $1.49 billion.

Management remains hopeful of the momentum of its hybrid cloud business. Its differentiated product portfolio and strong distribution channels will keep demand and adoption of the products strong going ahead.

Upward Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate for NetApp's current quarter and current year witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is currently pegged at $1.00 per share, up from earnings of 99 cents per share earlier. Similarly, the Zacks Consensus Estimate for current year is currently pegged at $3.36 per share compared with $3.33 projected 30 days ago.

Style Scores Look Great

NetApp currently sports an A grade for Growth and Momentum, lifting its overall VGM Score to A.

Positive Earnings Surprise History

NetApp has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 11.3%.

Further, it has a long-term expected EPS growth rate of 11.3%.

To Conclude

In our opinion, the stock deserves a place in investor’s portfolio and we are expecting an impressive return from the stock in the next few months.

Currently, the stock carries a Zacks Rank #3 (Hold).

Some better top-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT, NVIDIA Corporation NVDA and DXC Technology Company DXC.  Applied Materials and DXC Technology carry a Zacks Rank #2 (Buy), while NVIDIA sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, NVIDIA and DXC Technology have a long-term expected EPS growth rate of 12.7%, 10.3% and 10.5%, respectively.

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