Wells Fargo Remains Sidelined on NetApp (NTAP) Following Solid 1Q Results
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Wells Fargo reiterated a Market Perform rating on NetApp (NASDAQ: NTAP) following the company's 1Q earnings report. Revenues of $1.29B were above the Street's $1.26B estimate due to higher product revenues, particularly mature product revenues vs estimates. EPS of $0.46 was above also above the Street's estimate ($0.36) due to higher revenues and lower G&A expense.
Analyst Maynard Um commented, "NTAP reported a good quarter with upside coming from better-than-anticipated product sales and some stabilization in product gross margins, suggesting competitive pressures are easing. However, upside was more from mature products (lesser-than-anticipated decline) and we believe the mix needs to shift further toward strategic products before we see return to yr/yr revenue growth (product revs were flat yr/yr excluding the impact of 14th week last year and are expected to be down yr/yr in FQ2 on tough comps). FQ2 revenue guidance is in line with expectations though product gross margins are surprisingly expected to increase sequentially, which could be partly due to the changes to promotional activity (lower promotions on cDOT and flash products, but will partially be offset by some new promotions). Guidance of seq. increase in product gross margins may suggest competitive pressures are easing though management indicated the environment has not changed with smaller vendors such as NMBL and PSTG becoming more aggressive. We maintain our Market Perform rating given our expectation for FY17 to be a transition year though we are incrementally more positive given the stabilization of product gross margins and implied guidance for improvement. We increase our valuation range to $28-$32 from $23-26."
Shares of NetApp closed at $28.85 yesterday.
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