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NetApp (NTAP) Surges 69% in One Year: Will the Rally Continue?

NetApp NTAP is continuing its upward trajectory, with a gain 69.2% in the past year compared with the S&P 500 Composite’s 27.7% growth.

With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment.

Apart from a favorable rank, NTAP has a VGM Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a VGM Score of A or B offer solid investment opportunities.

Zacks Investment Research
Zacks Investment Research


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The stock is down 1.7% from its 52-week high level of $112.48, making it relatively affordable for investors.

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The long-term earnings growth rate is 8.8%. NTAP’s earnings beat estimates in each of the last four quarters, delivering an average surprise of 12.3%.

NetApp’s PE ratio is pegged at 16.64, lower than the industry’s ratio of 25.1.

The company provides enterprise storage as well as data management software and hardware products, and services. The San Jose, CA-based company assists enterprises in managing multiple cloud environments, adopting next-generation technologies like artificial intelligence (AI), Kubernetes and contemporary databases, and navigating the complexity brought about by the quick development of data and cloud usage.

Factors Fueling Growth

Data-driven digital and cloud transformations involving business analytics, AI, data security and application modernization remain secular growth drivers.

Frequent product launches, strengthening go-to-market activities and various cloud collaborations are aiding NetApp in driving top-line performance. Extensive cost discipline is boosting margin performance.

The company recently unveiled its latest AFF A-Series systems, which are designed to tackle demanding IT workloads like GenAI, VMware and enterprise databases. It has also enhanced its portfolio to assist customers in operating more efficiently with their data.

The AI-driven landscape has pushed organizations to innovate swiftly, enhance customer experiences, combat cyber threats and boost productivity. The new product aims to offer intelligent data infrastructure to unlock the potential of AI-driven insights. The new AFF A-Series systems extend its footprint in unified data storage for the next generation of workloads.

The company’s advanced portfolio of ransomware protection solutions is likely to gain momentum amid rising cybersecurity risks. Its hyper-scaler partnerships and natively integrated storage services will help to tap the growing demand for generative AI.

However, uncertainty prevailing over macroeconomic conditions and high interest rates continue to hamper its financial performance. Also, price increases on NAND from suppliers are concerning.

Management expects strength in all-flash products, and hyper-scaler first-party and marketplace services to drive revenues in fiscal 2024. NetApp now anticipates fiscal 2024 revenues in the band of $6.185-$6.335 billion.

It now projects non-GAAP earnings per share (EPS) in the range of $6.40-$6.50 (previous prediction: $6.05-$6.25).

It estimates non-GAAP gross margin to be between 71% and 72% compared with 71% suggested earlier. Non-GAAP operating margin is forecast to be nearly 27% compared with the earlier prediction of 26%.

Healthy Capital Allocation Strategy

NTAP exited the quarter ending Jan 26, 2024, with $2.917 billion in cash, cash equivalents and investments compared with $2.620 billion as of Oct 27, 2023. Long-term debt was $1.991 billion, which remained unchanged as of Oct 27, 2023. Net cash from operations was $484 million compared with $377 million in the previous quarter. Free cash flow was $448 million (free cash flow margin was 27.9%) in the last reported quarter.

A strong balance sheet helps the company to continue shareholder-friendly initiatives via dividend payouts and share buybacks. In third-quarter fiscal 2024, it returned $203 million to shareholders as dividend payouts and share repurchases. It has $1 billion worth of shares remaining under its existing authorization. In fiscal 2023, the company returned $1.28 billion to shareholders in the form of dividends and share repurchases.

Estimates Activity

The Zacks Consensus Estimate for NTAP’s fiscal 2025 revenues is pegged at $6.51 billion, indicating growth of 4% from the year-ago levels. The consensus estimate for EPS for fiscal 2024 and 2025 is expected to rise 15.7% and 2.8% from the prior-year actuals to $6.47 and $6.65, respectively.

The consensus mark for fiscal 2024 and 2025 EPS has increased 5% and 4.2%, respectively, in the past 90 days, reflecting analysts’ optimism.

Other Stocks to Consider

Some other top-ranked stocks worth consideration in the broader technology space are Badger Meter BMI, Salesforce CRM and The Descartes Systems Group Inc DSGX. While BMI sports a Zacks Rank #1 (Strong Buy), CRM and DSGX carry a Zacks Rank of 2 each, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BMI’s 2024 EPS is pegged at $3.89, up 9.9% in the past 60 days. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.7%. The long-term earnings growth rate is 15.6%. Shares of BMI have risen 41% in the past year.

The Zacks Consensus Estimate for Salesforce’s fiscal 2025 EPS is pegged at $9.71. The long-term earnings growth rate is 17.4%. Salesforce’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 5.1%. Shares of CRM have risen 37% in the past year.

The Zacks Consensus Estimate for Descartes’ fiscal 2025 EPS has increased 1.2% in the past 60 days to $1.69. Descartes earnings beat the Zacks Consensus Estimate in two of the last four quarters, while missing in the remaining two quarters, the average surprise being 5.1%. Shares of DSGX have risen 26.3% in the past year.

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Salesforce Inc. (CRM) : Free Stock Analysis Report

Badger Meter, Inc. (BMI) : Free Stock Analysis Report

NetApp, Inc. (NTAP) : Free Stock Analysis Report

The Descartes Systems Group Inc. (DSGX) : Free Stock Analysis Report

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