Why NetApp Will Grow Its Top And Bottom Lines For At Least A Year, Potentially Longer

Analysts at Argus turned bullish on NetApp Inc. NTAP Monday amid a view that the company is now positioned for at least a year of revenue and earnings growth. The firm's Jim Kelleher upgraded NetApp's stock rating from Hold to Buy and set a $46 price target.

After peaking north of $45 per share, NetApp's stock has since dipped below the $40 per share mark, which provides investors with an attractive entry point, Kelleher said in a note. The company is well-positioned to benefit from improving product sales, especially at a time when service and maintenance revenues will grow from an already existing installed base, he said.

"NetApp has long targeted user adoption of its Clustered Data ONTAP operating system for fiber-attached storage (FAS)," Kelleher said (see his track record here). "The company is now equally focused on several key growth drivers, most notably all-flash arrays, converged infrastructure and data management across hybrid cloud environments."

There are some "caveats" with a new bullish rating, Kelleher said. NetApp is already benefiting from integration issues at Dell/EMC and "turmoil" at Hewlett Packard Enterprise Co HPE, where the company is "struggling to keep its server business relevant." But the benefits NetApp is enjoying today will likely diminish in the coming quarters, at which point the company will also face new competition from all-flash niche company such as Pure Storage, the analyst said. 

Nevertheless, NetApp still has "substantial opportunities" to sell its all-flash products, and after the stock's sell-off, the company's valuation is attractive to investors near $39 per share, according to Argus. 

Bottom line, NetApp's focus on storage could prove to be a key advantage at a time of industry and consolidation, Kelleher said. The company is in a better position today than it has been in the past to deliver sustained revenue and earnings growth, higher margins and superior returns to shareholders, he said. 

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