UPDATE: William Blair Upgrades NetApp (NTAP) to Outperform Citing 5 Reasons
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William Blair analyst Jason Ader upgraded NetApp (NASDAQ: NTAP) from Market Perform to Outperform, citing the following 5 reasons:
- NetApp’s cloud services business has become material (about $300 million in ARR, growing 100%-plus), which is driving inflection in NetApp’s revenue growth rate (from 1% CAGR in calendar 2016-2020 to a mid- to high-single-digit CAGR going forward);
- Our recent VAR discussions indicate steadily growing appreciation for NetApp’s cloud services leadership and differentiation, especially relative to its traditional competitor set, and cannibalization fears have thus far been unfounded (50% of cloud services customers are net new to NetApp);
- Short-term reopening tailwinds should boost NetApp’s core on-premises storage business (due to pent-up demand), with longer-term staying power for this business likely to be stronger than many investors believe as enterprises standardize on a hybrid cloud architecture for cost, locality, control, and compliance reasons;
- A mix-shift in revenue toward software and cloud-based solutions provides a pathway for non-GAAP gross margin expansion to 70% and non-GAAP operating margin expansion to 25%; and
- Based on a SOTP valuation analysis, which separates out NetApp’s cloud services business, we calculate more than 50% upside potential in the stock from current levels (using calendar 2022 estimates). Alternatively, just looking at cash-adjusted P/E multiples, we believe NetApp’s growth reacceleration and improving margin profile makes a strong case for rerating of the stock from its current level of 15 times (on our calendar 2022 estimates) to something closer to 20 times (implying 30% upside from current levels).
Shares of NetApp closed at $82.01 yesterday.
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