Why We Revised Our Price Estimate For NetApp To $90

by Trefis Team
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NetApp (NASDAQ: NTAP) has performed very well in recent years. The company has consistently beaten market EPS expectations, while its top line continues to trend upwards. In the most recent quarter, the company’s revenues grew by 11.6% year-over-year to $1.47 billion, largely driven by an impressive 20.4% growth in product revenue. Furthermore, the company’s decision to transition to flash storage arrays has led to some momentum, with this part of the business seeing around 50% year-on-year run-rate growth in the recently announced quarter.

Meanwhile, the company’s stock price has been on an upward trend since the start of this year. In fact, its stock is now trading more than 56% higher than its price at the beginning of the year, and up more than 143% since the start of last year. Despite the industry-wide normalization of NAND pricing, we expect that NetApp’s hybrid product approach and strong executions will drive growth for the company. Accordingly, we have revised our price estimate for NetApp upward to $90, which is slightly ahead of the current market price. Below, we discuss the factors that could contribute to the company’s growth. Our interactive dashboard breaks down our $90 price estimate for NetAppand you can modify any of our key drivers and forecasts to arrive at your own valuation estimate.

 

Factors That Should Drive NetApp’s Growth

  1. Flash Storage Has Solid Outlook: Several cloud enterprises are looking to upgrade their data centers to fulfill the requirements of modern-day business applications that require higher speed and responsiveness. Per a report from IDC, the flash storage market will grow at a CAGR of 21% until 2021. Consequently, NetApp’s total addressable market (TAM) is growing at a decent rate.
  2. NetApp’s AFA Is Right In The Thick Of This Projected Growth: Over the years, the company has continuously improved its flash storage product (AFA) through R&D and sound acquisitions. As a result, AFA is one of the most efficient flash storage products in the market. More recently, the company launched AFF800, a NVMe platform product that supports high-density 30-terabyte SSDs. The product should generate interest from enterprises involved in artificial intelligence and machine learning.
  3. Flash Storage Results In Cost Savings: Despite the higher drive costs, flash storage generally results in cost savings in the long run as it has a smaller footprint. Furthermore, it often requires less power to run, resulting in electricity savings. One of NetApp’s Fortune 20 clients reportedly managed to achieve $6.5 million in run-rate savings by installing flash storage products in its data centers. Accordingly, flash storage is a compelling product as it not only delivers high performance but can also drive cost savings.
  4. Hybrid Product Solutions Will Drive Customer Satisfaction: Within Data Fabric, a solution that is focused on data management, the company provides its ONTAP storage operating system along with flash storage products. ONTAP allows intuitive access and manipulation of data, which is essential for companies with complex IT infrastructure. As a result, enterprises are making long-term investments, which bodes well for NetApp over the long run.

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