NetApp's Business Still Sluggish

Although sluggish demand for enterprise storage and intensifying competitive pressures may continue to impact NetApp Inc. NTAP's performance, the current consensus estimates seem to be underestimating the EPS upside from cost reduction, BTIG’s Edward Parker said in a report, while maintaining a Neutral rating on the company.

NetApp is scheduled to report its FQ3 results Wednesday. Ongoing cost reductions at the company drive shares through the second half of 2016, and would likely lead to upward EPS revisions over the next couple of quarters, Parker noted.

Business Sluggish

“Our enterprise storage checks suggest that demand has been quite sluggish at year end and we believe there is no indication of a material change in the company’s sales momentum,” Parker wrote. He added that while comps are favorable, the recent investor excitement around product transition could “prove to be premature.”

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EPS Upside

NetApp is taking steps to reduce headcount by ~18 percent. Although comps are impacted by the SolidFire acquisition and the ongoing realignment and reinvestment activities, the consensus forecasts reflect year-over-year operating expense declines of only ~5 percent and 1 percent in fiscal year 2017 and 2018, respectively, which “seems too low given the magnitude of the headcount reductions,” the analyst stated.