The shares of this tech company were also recently initiated at Guggenheim with a ‘Buy’ rating.
NetApp Inc (NTAP)
From Argus Weekly Staff Report
BUY-rated NetApp Inc. (NGS: NTAP) and partner Cisco Systems have new offerings in their FlexPod solution, which integrates Cisco’s UCS server architecture with NetApp’s data solutions. Among the new offerings are a managed private cloud solution which enables cloud efficiency and remote management for on-premises solutions.
One of the more promising developments is FlexPod industry solutions, which address the specific data management challenges for individual verticals. The first of these solutions, FlexPod Datacenter for Epic HER, is designed to simplify IT infrastructure and data management for healthcare customers and organizations. FlexPod will launch additional solutions aimed at other industries later in the calendar year.
FlexPod tends to vanish into Cisco’s vast P&L statement but is a material part of NetApp’s business - both as a way to drive into new markets and as a component of financial growth. We believe the industry-specific approach at FlexPod could be a strong new business driver. This approach may also be timely, given that integrated solutions rival Dell EMC is engaged in more financial engineering to unlock the value of VMware. In our view, NetApp is more nimble than its large rival; it is certainly less debt-encumbered. In April 2018, NetApp laid out aggressive operating and capital goals for the next several years, signaling management and the board’s confidence in overall industry trends and NetApp’s position within the storage market.
In addition to growing the FlexPod partnership with Cisco, NetApp is taking aim at the cloud data service business where it is partnering with cloud titans including Amazon Web Services and Microsoft Azure.
The board announced a $4 billion share repurchase authorization and doubled its quarterly dividend to $0.40 from $0.20.
NTAP is trading at a two-year forward P/E of 17.6, which is now meaningfully above the trailing five-year P/E of 13.8. In a rising market, the two-year forward relative P/E has now moved above the market P/E; the two-year forward P/E of 1.11 is above the five-year trailing relative P/E of 0.87. We believe that is warranted, based on NetApp’s much improved growth profile.
Reflecting its superior growth prospects, NTAP now trades at slight premiums to the peer average PEGY multiple and EV/EBITDA. The stock appears attractive based on our 2- and 3-stage discounted free cash flow models. Reflecting our more positive near- and long-term growth outlook for NetApp, new free cash flow growth goals for the company, and higher net margin based on lower taxes and operating leverage, our revised discounted free cash flow analysis suggests a value in the $120s, in a rising trend from the $80s one year ago.
Based on the increasingly positive outlook, we calculate a blended value for NTAP in the low-$100s, in a rising trend. Appreciation to our 12-month target price of $90 (raised from, $76), along with the indicated dividend yield, implies a risk-adjusted 12-month return of 15%, and is thus consistent with a BUY rating
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, July 13, 2018