Drexel Hamilton Upgrades NetApp (NTAP) to Buy
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Drexel Hamilton upgraded NetApp (NASDAQ: NTAP) from Hold to Buy with a price target of $52.00.
Analyst Brian J. White highlighted:
- Last night, NetApp delivered a solid 2Q:FY17 performance and offered up a strong 3Q:FY17 outlook as the company is benefiting from its transition initiatives. As such, we are increasing our estimates and upgrading our rating to BUY from HOLD with a $52.00 price target.
- As NetApp continues to demonstrate progress in its transition that includes more flash, more cloud and improved execution around Clustered Data ONTAP, combined with a leaner cost structure, we believe more investors will warm up to the story. The stock still trades at just 8.5x (ex-cash) our CY:17 EPS estimate.
- NetApp reported 2Q:FY17 sales of $1.34 billion (down 7% YoY) that slightly missed our $1.36 billion projection (Street was at $1.35 billion), while pro forma EPS of $0.60 beat our $0.55 estimate (Street was at $0.54). Recall, NetApp's 2Q:FY17 outlook called for revenue of $1.265-1.415 billion with pro forma EPS of $0.51-0.56.
- In our view, the tone of the call was upbeat as NetApp showed more signs of moving past the major issues around Clustered Data ONTAP, while participating in the trend toward flash solutions in a bigger way and benefitting nicely from a leaner cost structure. Clustered ONTAP represented 86% of FAS systems shipped in 2Q:FY17 and increased from roughly 70% a year ago. Clustered ONTAP is now running on approximately 36% of the installed base.
- During 2Q:FY17, sales of strategic solutions (62% of net product revenue) were flat YoY but up 10% QoQ; while mature solutions declined by 29%. NetApp's existing all-flash array business surpassed a $1 billion annual revenue run rate in 2Q:FY17. During 2Q:FY17, total Product sales (53% of 2Q:FY17 sales) increased by 8% QoQ (down 13% YoY) and better than our up 6% QoQ estimate.
- For 3Q:FY17, NetApp expects sales of $1.325-$1.475 billion (consensus is at $1.36 billion) with pro forma EPS of $0.72-$0.77 (consensus is at $0.65). For 3Q:FY17, we are increasing our revenue forecast to $1.40 billion from $1.39 billion and raising our pro forma EPS estimate to $0.75 from $0.65. For FY:17, we are increasing our pro forma EPS estimate to $2.52 from $2.43 (Street is at $2.36).
Shares of NetApp closed at $34.73 yesterday.
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