NetApp Inc. (NTAP): The Positives and Negatives from F3Q:18 Earnings


NetApp Inc. (NASDAQ:NTAP) investors apparently didn’t like what they saw from the data-storage systems provider’s earnings report on Wednesday, sending shares lower by nearly 13%.

Oppenheimer analyst Ittai Kidron listed the positives and negatives from NetApp’s quarter and didn’t see anything that convinced him to change his neutral outlook.

Positives:

  • Continued strategic product momentum ($647M, +26.4% YoY) and market share gains.
  • AFA annualized run-rate up ~50% YoY at ~$2.0B.
  • Converged strength (up >50% YoY) and hyperconverged expansion/potential.
  • Cloud enhancements/integration.
  • Mature product stabilization.
  • YoY growth in all regions. FCF of $388M, +104% YoY.
  • Good cost control.
  • Steady capital returns ($150M buyback/$53M dividend).

Negatives

  • Gross margin pressure, down QoQ (reflecting 2Q benefits and some 3Q seasonal discounting) and flattish outlook reflected in guidance (61.5-62.5%; note product mix impact). Some upside was currency and tax related.
  • Continued services pressure.
  • Dynamic competitive environment, especially around AFA
    and hyperconvergence (including Dell/EMC uncertainty overall).
  • Cloud secular pressures.
  • FX uncertainties.

“We’d look to the upcoming April 5th Analyst Day as an opportunity to quickly rebuild confidence as more color on cloud opportunities, margins and taxes updates, and capital allocation plans are shared,” the analyst concluded.

Overall, the Street is divided on whether to be bullish or sidelined on this NTAP stock. Out of 21 analysts polled by TipRanks in the last 3 months, 10 rate a Buy on NTAP, 10 issue a Hold, while only one recommends a Sell. When considering if this stock is an overvalued or undervalued contender in the market, it is worthy of note that analyst expectations indicate nearly 19% return potential, with the 12-month average price target standing at $62.82.