Earnings Preview: NetApp Inc. - Analyst Blog

NetApp Inc. (NTAP) is scheduled to announce its second quarter 2011 results on November 17. The upward revisions in estimates reflect positive sentiments on the stock.

First Quarter Overview

NetApp reported solid first quarter 2011 numbers, with adjusted earnings per share of 41 cents, which exceeded the Zacks Consensus Estimate of 36 cents.

NetApp delivered total revenue of $1.14 billion, up 35.8% from the year-ago quarter and above the Zacks Consensus Estimate of $1.13 billion. Revenue growth was attributed to the significant increase in product revenues, while other revenue segments also improved on a year-over-year basis.

Gross margin on a GAAP basis was 63.7%, up from 62.4% in the year-earlier quarter. Gross margin benefited from a better mix of business in the quarter. Operating margin increased 60 basis points from the year-ago quarter to 14.4%. A substantial increase in the company's sales, as well as a tight control on cost and expenses led to the increase.

NetApp exited the quarter with cash, cash equivalents and investments of $3.92 billion, or an increase of around $196.9 million over the prior quarter. Cash from operations in the quarter was $177.3 million, down from $474.6 million in the previous quarter.

The company expects second quarter 2011 revenue in the range of $1.16 billion to $1.21 billion. On a GAAP basis, earnings per share are expected to range between 35 cents and 38 cents, while non-GAAP earnings per share are expected to be in the range of 47 cents to 50 cents.

Agreement of Analysts

Out of the 16 analysts providing estimates for the second quarter, 2 increased their estimates in the last thirty days, while there was no downward revision. Out of the 17 analysts tracking the stock for fiscal 2011, 4 raised their estimates in the last thirty days, while there was no movement noticed in the opposite direction.

Some analysts believe that NetApp's core competencies in Network Attached Storage and Internet-based storage networking protocols will position the company well to benefit from a further adoption of server virtualization, unified storage and the shift toward 10G Ethernet infrastructure. Moreover, the analysts are positive on the new mid-range storage product launch. Since the mid-range products account for a greater share of total revenue, the launch is expected to boost revenue growth.

Magnitude of Estimate Revisions

The magnitude of revisions has also been minimal since the company reported its first quarter results. Overall, estimates for the upcoming quarter have gone up from 37 cents ninety days ago to 39 cents, while the estimate remained constant over the last thirty days.

For fiscal 2011, estimates jumped from $1.54 ninety days ago to $1.63. Over the past thirty days, estimates increased by a penny. For 2012, estimates went up from $1.73 ninety days ago to $1.82, with a three-cent upward revision in estimates over the last thirty days.

Recommendation

We remain encouraged by improved results in the first quarter and believe that the momentum will continue on strong partnership programs. Moreover, we are optimistic about NetApp's merger and acquisition strategy.

During the first quarter, NetApp strengthened its strategic relationships with Microsoft Corp. (MSFT) and other partners to facilitate customers' and service providers' shift to cloud computing. NetApp, VMware Inc. (VMW) and Cisco Systems Inc. (CSCO) also took their trilateral venture a step ahead by introducing new solutions to increase data center efficiencies. As a result, most of the analysts expect solid revenue growth in the second quarter.

NetApp is performing impressively, despite a stiff competition from technical behemoths such as International Business Machines Inc. (IBM) and EMC Corporation (EMC) in the data storage and management software space.

Currently, NetApp has a short-term Buy recommendation, as indicated by the Zacks #2 Rank.

 
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