Sell-Side Likes NetApp Heading Into Its Q1 Earnings Report

Ahead of NetApp Inc. (NASDAQ: NTAP)'s fiscal year first-quarter results, scheduled for after the market close Wednesday, analysts sound bullish on the hybrid cloud services provider.

Longbow Research's Joe Wittine upgraded shares of NetApp from Neutral to Buy with a $50 price target and Susquehanna Financial Group analyst Mehdi Hosseini maintains its Positive rating and raised its price target from $48 to $50.

Bullish Due To Share Gains

Longbow Research said share gains, which have continued into early 2018 and the upcoming HCI, or Hyperconverged Infrastructure, launch can drive positive estimate revisions. The firm's survey revealed that NetApp share gains have come at the expense of Hewlett Packard Enterprise Co (NYSE: HPE) and Dell EMC. The firm also believes Pure Storage Inc (NYSE: PSTG) is another beneficiary.

Presenting the other takeaways from its survey, the firm said the channel is more enthusiastic about NetApp's strategy and vision.

"Views on NetApp HCI are mixed, including some teeth gnashing it isn't 'true' hyperconverged, while others believe the inherent flexibility is forward-looking, and shows where the segment is heading," the firm said.

Although SSD availability is limiting some supply chain sales, the firm said it is less concerned for NetApp, which has its calendar year 2017 supply reserved. The firm also noted comments from Samsung Electronic (OTC: SSNLF), NetApp's key supplier, which said supply will improve later this year.

Although on-premise storage faces secular challenges, Longbow Research feels NetApp is well positioned through righting its all-Flash product set, the Data Fabric flexibility between on-prem and public cloud, share gains and by filling its HCI hole.

The firm feels these could return the company to mid-single-digit sales growth in calendar year 2018 compared to Street estimate for 2 percent growth. The firm also sees the possibility of earnings beats, as the Street is yet to account for the company's operating expenditure pattern. Earnings could also benefit from continued appreciation of the euro. The firm also thinks a repatriation holiday would unlock more capital returns.

The firm reiterated its first-quarter earnings per share forecast of 59 cents, which is above the consensus expectations.

Related Link: Channel Checks Suggest NetApp's Cloud Products Gaining 'Mindshare' With Customers

Remaining Constructive On NetApp

Meanwhile, Susquehanna said we are in the early innings of the All-Flash Array opportunity for NetApp. The firm thinks the company's new HCI product has the potential to become impactful to growth, exiting fiscal years 2018 and 2019. As such, the firm said it remains constructive on NetApp.

The firm expects below-consensus numbers for the July quarter but is above-consensus for the remainder of 2018. For the July quarter, the firm expects AFA revenues of $360 million, up 80 percent year-over-year. On the other hand, the firm expects the mature business to continue to decline, dropping 20 percent. Overall product revenues are expected to be up 3 percent.

"All in all, we remain comfortable with our estimates, and expect the current FY18 Consensus estimate of $3.02 to be revised higher towards our estimate of $3.25, driven by low single-digit top line growth and OM expansion," the firm concluded.

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