NetApp's Descent Appears To Be Leveling Off, BTIG Says

BTIG said the first-quarter results of NetApp Inc. (NASDAQ: NTAP) suggest that "double-digit product revenue declines seen for more than a year are starting to reverse," and modest growth could appear later this fiscal year.

The results, which handily beat the Street's consensus, showed that the headwinds in OEM and legacy ONTAP are diminishing with the law of small numbers, while AFA and ONTAP 9 transitions are gaining momentum.

Related Link: NetApp Surging After Q1 Results

The brokerage termed the results as "encouraging," but maintains its Neutral stance on the shares, stating that the company needs to show stable growth.

"Upside from here is now dependent on a return to a more stable growth trajectory, which is still easier said than done given the scope of the company's realignment initiatives, the secular challenges, the choppy macro environment, and intensifying competitive environment," analyst Edward Parker wrote in a note.

Despite being cautious, the analyst raised his F17/F18 product growth estimates to -3 percent/1 percent from -8 percent/-5 percent. The analyst also noted that the company's strong execution of its cost saving plan should put upward pressure on generally bearish consensus forecasts.

Moreover, Parker sees fair value in the low- to mid-$30s given his new F18 EPS estimate of about $3.00 (vs. prior of $2.50), assuming about 10x multiple, in line with "legacy tech."

Shares of NetApp closed Wednesday's regular trading session at $28.85. In the pre-market hours on Thursday, they rose 8.84 percent to $31.40, and at time of publication, were up 11.82 percent at $32.26.

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