D.A. Davidson On NetApp: Maintains Buy Despite Projecting Q1 EPS, Revenue Below Consensus

D.A. Davidson expects NetApp Inc. (NASDAQ: NTAP)'s earnings and revenues below consensus, as the company reports its first-quarter results on August 17. However, the brokerage maintains its Buy rating on the stock, saying NetApp offers an attractive value investment opportunity.

Expectations And Rating

D.A. Davidson estimates first-quarter earnings of $0.34 on revenue of $1.247 billion versus consensus estimate of $0.36 on revenue of $1.257 billion. NetApp guidance calls for earnings of $0.34–$0.39 a share on revenue of $1.2 billion–$1.35 billion.

The company is benefiting from solid demand for Flash, especially with the acquisition of SolidFire, which allows it to compete in the hyper-scale and cloud data center market.

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However, the company's "Mature Solutions" unit, which includes the company's OEM revenue, sequentially declined 13 percent in the last quarter. For the full fiscal year ended April, strategic products (consists of Flash products) grew 21 percent year-over-year, while Mature Solutions were down 40 percent.

"We anticipate that the headwind from the Mature Solutions decline will keep overall year-over-year revenue growth slightly negative for the next two quarters, after which we expect revenue re-acceleration," analyst Mark Kelleher wrote in a note.

Further Justification

Moreover, Kelleher is bullish on NetApp due to its rejuvenated product line, strong cash flow and a commitment of $1 billion more to its stock buyback program.

"With additional investments in sales capacity and channel education, we believe the company should be able to move towards overall top-line growth by fiscal 2018," Kelleher added.

At time of writing, shares of NetApp rose 1.11 percent to $28.76, while the analyst has a price target of $35.

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