NetApp's NTAP shares have been performing well on the trading front, with a gain of 51.1% year to date compared with the sub-industry and the S&P 500 composite's growth of 47.1% and 16.6%, respectively.
NetApp provides enterprise storage, 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, Kubernetes and contemporary databases and navigating the complexity brought by the quick development of data and cloud usage.
With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at present.
Apart from a favorable rank, NTAP has a Growth Score of B. Per Zacks' proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a Growth Score of A or B offer solid investment opportunities.
Image Source: Zacks Investment Research
The stock is down 13.9% from its 52-week high level of $135.01, reflecting further potential upside.
The company's earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and met the same in one, delivering an average surprise of 8.8%.
Factors Driving Performance
Solid demand across the all-flash and cloud storage portfolio is driving top-line expansion. Data-driven digital and cloud transformations involving business analytics, AI, data security and application modernization remain secular growth drivers.
The company expects the new AFF A-series, along with its C-series and ASA products, to capture further share in the all-flash market.
The AI-driven landscape has pushed organizations to innovate swiftly, enhance customer experiences, combat cyber threats and boost productivity. This new product is aimed at offering 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.
In the fourth quarter of fiscal 2024, the company's All-Flash Array Business' annualized net revenue run rate was $3.6 billion, up 17% year over year. Total billings rose 8% year over year to $1.8 billion.
Apart from 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's advanced portfolio of ransomware protection solutions is expected to gain momentum amid rising cybersecurity risks. Its hyper-scaler partnerships and natively integrated storage services should help tap the growing demand for generative AI.
NetApp expects its strengthening position in tackling critical customer priorities, such as business analytics, AI, cloud transitions, data security and application modernization, to drive further expansion.
The company expects fiscal 2025 revenues to be in the band of $6.45-$6.65 billion compared with $6.27 billion in the previous year. Management also expects Public Cloud revenues to return to steady growth in fiscal 2025. Public Cloud Services recorded revenues of $152 million in the fourth quarter of fiscal 2024, up 1% year over year.
Sound Capital Allocation Strategy
NetApp's cash, cash equivalents and investments were $3.252 billion as of Apr 26, 2024. Its long-term debt was $1.992 billion in the same period. For the fiscal fourth quarter, the company's generated net cash from operations was $613 million compared with $235 million in the prior-year quarter. Free cash flow was $567 million (free cash flow margin of 34%) compared with $196 million in the prior-year quarter (12.4%).
A strong balance sheet helps the company to continue its shareholder-friendly initiatives via dividend payouts and share buybacks. The company returned $204 million and $1.32 billion to its shareholders as dividend payouts and share repurchases, respectively, in the fiscal fourth quarter and fiscal year. NTAP also announced a 4% hike in its quarterly dividend and an additional $1 billion share repurchase authorization.
Estimates Activity
The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues is pegged at $6.55 billion and $6.81 billion, respectively, which indicates year-over-year growth of 4.4% and 4.1%.
The Zacks Consensus Estimate for earnings per share for fiscal 2025 and fiscal 2026 is expected to rise 6.2% and 7.1%, respectively, year over year to $6.86 and $7.34.
The Zacks Consensus Estimate for fiscal 2025 and 2026 EPS has increased 3.2% and 3.1%, respectively, in the past 90 days, reflecting analysts' optimism.
Headwinds Persist
However, an unfavorable macroeconomic environment and price increases on NAND from suppliers continue to remain headwinds.
Stiff competition from Pure Storage in all-flash business and cloud-based storage solutions' space is another headwind.
Other Stocks to Consider
Some other top-ranked stocks worth consideration in the broader technology space are Badger Meter BMI, SAP SE SAP, and Generac Holdings GNRC. Badger Meter sports a Zacks Rank #1, while SAP and GNRC carry a Zacks Rank #2 each at present.
The Zacks Consensus Estimate for Badger Meter's 2024 EPS is pegged at $4.06, up 3% in the past 30 days. BMI's earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.9%. The long-term earnings growth rate is 17.9%. Its shares have risen 15.7% in the past year.
The Zacks Consensus Estimate for GNRC's 2024 earnings is pegged at $6.44, up 4.5% in the past seven days. GNRC's earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing once, the average surprise being 9.75%. The long-term earnings growth rate is 12%. Its shares have risen 28.4% in the past year.
The Zacks Consensus Estimate for SAP's 2024 EPS is pegged at $4.75. SAP's earnings beat the Zacks Consensus Estimate in two of the last four quarters and missed the same in the other two, the average surprise being 4%. The long-term earnings growth rate is 10.7%. The stock has surged 48.7% in the past year.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
