Baird Analyst’s Outlook for NetApp Inc (NTAP) Ahead of FQ2 Earnings

By Carrie Williams

Analyst Comments on NetApp Ahead of Upcoming EarningsBaird analyst Jayson Noland today issued a note to investors, reiterating his Neutral rating and a $37 price target on shares of popular data storage company NetApp Inc (NASDAQ: NTAP). This PT is an upside of 9.2% from the last close price of $33.86. NTAP stock is currently trading close to the 50-day SMA of $34.32.

NetApp is expected to post their Fiscal Q2 results this Wednesday, November 16. For FQ1, the company had reported both earnings as well as revenue beat, with an EPS of $0.46 and revenue of $1.29 billion. Noland believes that even though the FQ2 previews cited poor channel feedback across a sample of NetApp resellers, the company’s strategy of establishing strongholds within leading resellers by shifting resources to its largest partners would prove to be a smart move.

Noland also expressed confidence that the headwinds from the drives with large storage sizes, higher competitions, and cloud as well as server-based storage would be offset by the positives like CDOT adoption, refreshed All-Flash portfolio, and the restructuring and realignment of NTPA’s business. The money saved and reinvested from the 12% cut in the workforce is also expected to bring a net cost savings of $130 million by FYE17. In addition, top-line growth is expected to be up by another 2+ points thanks to the recently acquired SolidFire.

Nevertheless, new challenges are still present for the incumbent storage providers like NetApp from cloud providers as well as innovative start-ups. NTAP could potentially lose out to web-scale providers like AWS in the case of non-mission critical and cold data with appliance gateways and storage architectures that are proprietary. Unlike Verizon Terremark, other high-profile hyper-scale providers are already showing reluctance to buy Storage from traditional OEMs. Meanwhile, the forthcoming addition of NVMe (Non-Volatile Memory Express) in SSDs is not expected to have a huge impact on NPAP due to NetApp’s architectural familiarity with cache acceleration.

NetApp had recently introduced new hybrid service ‘NetApp Private Storage as a Service’ that would ease the connection between storage and cloud. Using this, customers would be able to work with service providers to manage storage as an operating expense while ensuring the security of their data. So far, NetApp is the only storage company with this capability, thanks to its cloud relationships.

Analysts’ overall consensus rating on NetApp currently seems to be inline with Baird, as the consensus rating based on analysts’ most recent recommendations is a Hold according to TipRanks.com. The analysts have an average price target of $32.31, a 4.58% Downside from NTAP’s current levels.