NetApp Stock Looks Set To Gain 25% As Cloud Demand Surges

Based on a comparison of NetApp’s stock (NASDAQ: NTAP) trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 25%, to reach almost $59 once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of NetApp’s performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, How Did NetApp Stock Fare vs. The S&P 500 In 2008 and Now?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. NetApp stock lost 34% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 35% over recent weeks (vs. about a 56% gain in the S&P 500) to its current level around $47. Despite these gains, the stock is still down 24% since the beginning of the year.

The Sharp Movements In NetApp’s Stock Were Triggered By Several Underlying Factors

The decline in NetApp’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown are likely to have on total industrial and economic activity. This is likely to adversely impact the company’s revenues as major companies are likely to delay expenses related to upgrading infrastructure and software. However, NetApp delivered a robust performance in Q1 2021 (ending July) results, with the company’s revenues growing by 5% to $1.3 billion led by the strong demand for the hybrid cloud services. Moreover, as more companies transition toward a work from culture, demand for cloud services will increase. This is likely to further support NetApp’s stock price movement over the coming months.

But How Does The Movement This Time Around Compare With The Trend During The 2008 Downturn?

• We see NetApp stock declined from levels of around $23 in October 2007 (the pre-crisis peak) to levels of around $12 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 50% from its approximate pre-crisis peak. This marked a similar drop to the broader S&P, which fell by about 51%.
• However, NetApp stock recovered strongly post the 2008 crisis to about $30 in early 2010 – rising by 156% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will NetApp’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that NetApp stock fell 34% from the market peak on February 19 to the low on March 23 compared to the 50% decline during the 2008 recession, we believe it can potentially recover by around 25% to levels near $59 once economic conditions begin to show signs of improving. This marks a full recovery to the $59 level NetApp stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of NetApp’s multinational peers, including the impact on Cisco and F5 Networks. The complete set of coronavirus impact and timing analyses is available here.

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