NetApp (NTAP) Beats Q4 Expectations, Analysts Raise PT After a 'Breakout Cloud Quarter'

June 3, 2021 10:12 AM EDT
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Price: $78.21 +0.32%

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    24 Buy, 25 Hold, 4 Sell

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Shares of NetApp (NASDAQ: NTAP) are trading 2% higher today after the cloud company delivered better-than-expected results for its fiscal fourth quarter.

Strong results were driven by robust growth in its public cloud services unit. The data storage provider said its annualized revenue run rate (ARR) in the unit rose by 171% year-on-year to $301 million.

Moreover, the company reported a non-GAAP net income of $334 million, or $1.46 per share. Revenue came in at $1.56 billion, compared to the revenue of $1.4 billion and non-GAAP earnings per share of $1.17 from last year. Analysts were expecting EPS of $1.12 per share on revenue of $1.5 billion.

The company said the annualized net revenue run rate in its all-flash array business stood at $2.9 billion, up from $2.6 billion a year ago. Billings in the fourth quarter rose 12% year-on-year to $1.74 billion.

“We delivered fourth quarter results above expectations, capping off a solid year of growth. Our momentum underscores our value to customers in a hybrid, multi-cloud world. We are gaining share in key storage markets and our public cloud services are at a scale where they are positively impacting total company billings and revenue growth,” said George Kurian, chief executive officer.

As for the full fiscal year, the company nabbed $5.74 billion in revenue, with non-GAAP earnings of $4.06 per share, while product revenue was at $2.99 billion.

NetApp said it expects non-GAAP earnings per share to range between 89 cents and 97 cents, with revenue ranging from $1.37 billion to $1.47 billion, compared to analysts’ expectations of non-GAAP EPS of 87 cents on $1.37 billion of revenue.

The company projected full-year earnings per share to range between $4.45 and $4.65 and revenue growth of 6%-7%, compared to Wall Street estimates of EPS of $4.52 per share on revenue of $5.96 billion.

“Our focused execution last year has set us up well for FY22. I am excited about the year ahead and confident in our ability to grow revenue while delivering operating leverage as we support our customers on their cloud and digital transformation journeys,” Kurian added.

Morgan Stanley analyst Katy Huberty says NTAP delivered a “breakout cloud quarter” to prompt her to raise the price target to $94.00 per share from $92.00 per share. MS remains a buyer of the Overweight-rated NTAP on “accelerating public cloud growth and profitability.”

“NTAP typically outperforms in an IT recovery and our survey work suggests CIO IT spending intentions bottomed in 2Q20. In the year following the prior two bottoms in CIO IT spending intentions, NTAP shares outperformed enterprise hardware peers by 28% and 32%, respectively. Our checks point to a recovery in mid-market storage demand and improved NetApp execution, which combined with operating leverage creates a compelling double digit EPS growth story. Moreover, Cloud Data Services (CDS) adoption is surprising positively and NTAP is gaining external storage share due in part from disruption caused by Dell's PowerStore launch, creating additional tailwinds in CY21,” the analyst stressed in a note.

Susquehanna analyst Mehdi Hosseini raised the price target to $95.00 per share from $78.00 per share on the Positive-rated stock as the company continues to benefit from its vast installed base. Moreover, NTAP is slowly, but surely, upgrading its storage infrastructure, the analyst notes.

“In fact, only 28% of the installed base has upgraded (to AFA), implying there is significant upside opportunity among the customer base. Such customers could, in our opinion, upgrade their installed base at a faster pace instead of migrating incremental work loads to the cloud (recall repatriation), which could help NTAP with higher growth rate for its Product revenues. NTAP is also leveraged with the incremental work loads that are moving onto cloud as well as native-data growth through its Cloud Data Services,” Hosseini wrote in a memo sent to clients.

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