Raymond James Maintains Market Perform on NetApp (NTAP) Following Announced SolidFire Acquisition

Raymond James reiterated a Market Perform rating on NetApp (NASDAQ: NTAP), following the company's announced acquisition of SolidFire for $870 million in cash. For FY17, management expects minimal revenue contribution and $0.25 to $0.30 of EPS dilution, but expects SolidFire to add 2% to its long-term revenue growth rate.

Analyst Brian Alexander commented, "Today after market close NetApp announced its acquisition of SolidFire for $870 million in cash. Management expects the deal to close in 4QFY16 (Apr) and anticipates minimal revenue impact but lowered its 2HFY16 operating margin target to 16.5% versus previous guidance of slightly less than 18%. For FY17, management expects minimal revenue contribution and $0.25 to $0.30 of EPS dilution, but expects SolidFire to add 2% to its long-term revenue growth rate (although management would not commit to a specific time frame). We believe that there is some level of conservatism in the revenue impact in FY17 as we estimate SolidFire is currently at ~$50 million revenue run-rate growing at over 100% per year. Assuming 100% revenue growth in FY17 results in an acquisition multiple of ~10X. We estimate that SolidFire will add ~$85-$100 million of operating loss in FY17 or 90% of revenue. This compares to Pure and Nimble with operating losses as a % of revenue of 21% and 13% respectively although both companies had greater losses when revenue was at a similar level. We note that the purchase price is well below the rumored price of $1.2 billion and company will have $2.4 billion of net cash remaining following the closing of the deal. The company noted that it will be financing the acquisition with debt, and management intends to pay down the debt by the end of FY17 while maintaining its previous capital allocation plan including $1 billion of share repurchases by the end of May 2016."

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 $27.60 yesterday.

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