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NetApp Upgraded to Strong Buy on Impressive Q2 Earnings

Zacks Equity Research
Updated

On Nov 21, NetApp Inc. NTAP was upgraded to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

NetApp reported better-than-expected fiscal second-quarter 2018 results on the back of increased adoption of the company’s strategic solutions. The ongoing transition from underperforming segments to growth oriented sectors like all-flash arrays, hybrid cloud and Data Fabric strategies is another major tailwind for the company.

The company’s fiscal second-quarter 2018 non-GAAP earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 69 cents per share. The figure surged 35% on a year-over-year basis and was also within the guided range.

Revenues of $1.42 billion increased 6% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $1.38 billion. The figure met management’s expectation.

NetApp stock has gained 56.2% year to date, substantially outperforming the 28.4% rally of the industry it belongs to.

Key Factors

NetApp is tapping growth areas of the market with its strategic solutions. Revenues from strategic solutions increased 23% on a year-over-year basis in the just reported quarter. This segment  comprises around 69% of the company’s product revenues, which rose 14% year over year growth.

The company is positive about catering to the exponential rate of data growth with its cloud-integrated all-flash solutions that fit well with hybrid cloud infrastructure.

The company’s expertise in the flash array market is increasing its prominence in the storage area network (SAN) and converged infrastructure markets. Management noted that the company is winning market share against competitors like HP, International Business Machines IBM and EMC. The company’s newly launched hyper-converged infrastructure is also expected to be a positive for the top line in the long run.

Management is particularly optimistic about its expanded partnership with Microsoft MSFT Azure for the development of the industry’s first cloud-based enterprise Network File System (NFS) to be delivered via Azure.

We believe NetApp is well positioned to enjoy steady growth with its diversified portfolio and strong distribution channels that will drive demand for the products going forward.

NetApp, Inc. Revenue (TTM)

NetApp, Inc. Revenue (TTM) | NetApp, Inc. Quote

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Key Pick

Another top-ranked stock is NVIDIA Corporation NVDA, sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term growth rate for NVIDIA is projected to be 11.2%.

Wall Street’s Next Amazon

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
NetApp, Inc. (NTAP) : Free Stock Analysis Report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
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Zacks Investment Research