Today’s Daily Alert, from Argus analyst Jim Kelleher, is a tech stock with cloud computing exposure.
“We are raising our near-term rating on NetApp, Inc. (NTAP, $31) to BUY from HOLD and reaffirming our long-term BUY rating. Revenue rose 2% year-over-year and 7% sequentially in fiscal 2Q13, reported on November 14, despite a very tough environment for enterprise IT spending. NetApp was able to translate its stable pricing and higher revenue into non-GAAP EPS of $0.51, three cents above consensus. While EPS fell 19% from last year, it rose by more than 21% from the prior quarter.
“During 3Q12, NetApp shipped over one exabyte of storage for just the second time in its history. Capacity shipments rose 16% year-over-year and 6% sequentially. While historical industry growth has been faster, we believe that NetApp matched or exceeded industry growth in a challenging quarter. Given that revenue rose 7% sequentially, pricing appears to have stabilized on a quarter-over-quarter basis. Growth in capacity shipped (measured in bytes) is a positive for the long term and reverses the sequentially weaker capacity trend seen in 1Q13.
“NetApp has not leveraged the Engenio acquisition as successfully as EMC has leveraged Isilon and other assets in the big data space. In addition, some of the 2Q13 revenue strength was seasonal, reflecting the fiscal year-end budget flush for the U.S. government. EMC also continues to pursue NetApp customers in the small to mid-sized enterprise space. Despite competitive and macroeconomic challenges, NetApp appears to have stabilized its business. Strong sequential guidance for fiscal 3Q13 should result in positive year-over-year revenue and EPS comparisons, while positioning NetApp for further growth. We expect the company to continue to take share from ‘stack’ vendors (server companies). Although NTAP enjoyed a bounce following the 2Q earnings report, the stock remains down year-to-date and appears attractively valued given the company’s accelerating business momentum. We are establishing a 12-month target price of $36, implying a total risk-adjusted return of more than 20% from current levels.”
- Jim Kelleher, CFA, Argus Weekly Staff Report, November 26, 2012