Analysts: NetApp Product Transition Harder Than Expected

At least two analysts downgraded NetApp Inc. (NASDAQ: NTAP) Thursday after the data storage company missed quarterly expectations and offered a disappointing outlook.

The company traded recently at $31.27, down 11 percent.

NetApp's transition to cloud-related products will take longer than expected, according to JP Morgan's Rod Hall, who downgraded NetApp to Underweight.

NetApp has missed the consensus in seven of the past eight quarters, "yet each time we gave them a pass," said Summit's Srini Nanduri, who cut his rating on Thursday to Hold.

Although the company told investors late Wednesday that growth will return in the second half of fiscal 2016, Nanduri said he's skeptical.

Analysts at UBS, Credit Suisse and Longbow each reiterated Neutral ratings on NetApp, which plans charges of $25 million to $35 million to fire about 500 people, or 4 percent of its work force.

"It's a necessary step," Raymond James' Brian G. Alexander said in a note, maintaining a Market Perform rating on NetApp.

Alexander expects the company "to find support in the low $30s," and sees little reason to recommend the stock.

NetApp's 13 percent revenue decline from products bearing its brand in the recent fiscal fourth quarter "was the worst in nearly six years," according to Alexander.

Plans to boost spending on sales, training and distribution will result in lower-than-expected earnings for the fiscal first quarter, Alexander said.

Along with Oppenheimer's Ittai Kidron, Wells Fargo's Maynard Um maintained a Market Perform rating on the company.

NetApp should consider merging with a competitor, Um said.

"Six months may not be enough time to work through the transition," said Morgan Stanley's Kathy L. Huberty, who maintained an Underweight rating on NetApp.