What’s Driving Our $74 Price Estimate For NetApp?
NetApp (NASDAQ: NTAP) has seen mixed results in recent years. After a fairly weak 2016, the company saw its revenue stabilize in 2017. The company has seen growth in its Product segment, driven by ONTAP system volume growth, and its Software Maintenance segment driven by favorable pricing. However, pricing pressure on the Hardware Maintenance segment has offset that to an extent.
The company reported strong fiscal Q3 results in February, reporting 8% annual growth in net revenue to $1.5 billion. In the current fiscal year, NetApp has witnessed solid revenue growth, driven primarily by strategic products. Solid demand for the company’s all-flash storage product line has led to solid revenue growth in the latter part of the year, which we expect will continue when the company reports its fiscal Q4 earnings later this month. NetApp’s gross margin has also improved through the year due to a higher mix of strategic products sold.
NetApp’s solid growth and favorable outlook has led to stock price appreciation, with the stock up nearly 30% so far in 2018. Driven by the aforementioned factors, we have revised our price estimate for NetApp’s stock to $74, which is slightly above the current market price.
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Our interactive dashboard details our forecasts and estimates for the company going forward. You can modify our assumptions to arrive at your own price estimate for the company.
Our $74 price estimate for NetApp is based on a revenue forecast of $5.9 billion for this calendar year, which would imply year-on-year growth of about 7%. As mentioned above, this growth is likely to be largely driven by strategic products. The transition to flash storage arrays been a positive for the company, with this part of the business seeing around 50% year-on-year growth. With solutions such as Data Fabric and ONTAP Data Management Software, NetApp has been seeing traction among customers. Moreover, per IDC, NetApp has been seeing solid growth in its enterprise storage market share.
From a cost and margin standpoint, NetApp is likely to see some margin expansion due to a growing mix of higher-margin flash products as well as cost optimization measures.
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