Pacific Crest Downgrades NetApp (NTAP) to Underperform

Pacific Crest downgraded NetApp (NASDAQ: NTAP) from Sector Weight to Underperform. Analyst Brent Bracelin warned of pressure on EPS in the first half of 2016 as competitive threats increase.

"NetApp has executed well over the past two years expanding operating margin to 18% from a trough of 12% in F1Q13. Its capital allocation strategy has resulted in nearly $3 billion worth of buybacks and a dividend yield of 1.9%. However, the risk profile is increasing on both secular and competitive fronts. This could put further downward pressure on EPS in the first half of F2016, barring a material layoff. We are downgrading NTAP to an Underweight rating on increasing execution risks," said Bracelin.

"We see increasing risk of competitive assaults disrupting NetApp's fundamentals in F2016 (April). Disruptions that could have the highest impact include (1) share gains in next-generation storage appliances by Nimble, Pure, Nutanix, Solidfire and Tintri, (2) a new threat from Amazon as it enters the cloud NAS space for the first time this summer with Elastic File Storage, (3) new product-cycle driven share gains by EMC, and (4) data workload migrations to lower-cost NoSQL, Hadoop and software-defined storage clusters," continued the analyst.

Bracelin added, "Mixed reseller feedback on sluggish enterprise storage demand and NetApp's high EMEA exposure at ~31% of sales suggests that revenue could decline by 3% to 4% y/y in F4Q15. However, EPS could decline by more than 10% y/y after factoring in acquisition costs, sales investments and FX headwinds."

For an analyst ratings summary and ratings history on NetApp click here. For more ratings news on NetApp click here.

Shares of NetApp closed at $35.65 yesterday.

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