NetApp Up To Strong Buy: Should It Be In Your Portfolio?

On Aug 20, 2016, Zacks Investment Research upgraded NetApp Inc. (NASDAQ:NTAP) to a Zacks Rank #1 (Strong Buy). With a robust return of 14.9% over the past one year, positive estimate revisions over the last 30 days and an encouraging guidance for the second quarter of 2017, NetApp is an attractive investment opportunity.

Why the Upgrade?

Over the past 30 days, all the estimates (7) for fiscal 2017 were revised upward, taking the Zacks Consensus Estimate up by 23 cents (16.5%) to $1.62 per share. NetApp also delivered positive earnings surprises in two out of the last four quarters with an average beat of 14.5%.

NetApp started fiscal 2017 on a strong note with better-than-expected results for the first quarter. The company’s net revenue of $1.294 billion surpassed the Zacks Consensus Estimate of $1.264 billion as well as the mid-point of its own guidance range of $1.20 billion to $1.35 billion (mid-point $1.275 billion).

In the fiscal first quarter, NetApp’s adjusted earnings (including stock-based compensation but excluding amortization and other one-time items) of 28 cents per share beat the Zacks Consensus Estimate of 18 cents and witnessed a whopping seven-fold year-over-year jump.

Buoyed by the better-than-expected first-quarter results, the company provided positive second quarter fiscal 2017 guidance. The company expects revenues in the range of $1.265 billion to $1.415 billion for the second quarter of fiscal 2017. The Zacks Consensus Estimate is pegged at $1.353 billion. Non-GAAP earnings per share are projected in the range of 51 cents to 56 cents. The Zacks Consensus Estimate stands at 38 cents.

Adding to the positives, the company is expected to gain momentum in the flash-based solutions space, with the newly introduced all-flash array, which will help it to establish its presence in the storage market. The recent product launches and refreshes will drive the top line, while cost reduction initiatives will facilitate margin expansion over the long run.

However, the recent forecast for worldwide IT spending by Gartner raises concerns about NetApp’s near-term performance. Competition from EMC Corp. (NYSE:EMC) and HP Inc. (NYSE:HPQ) add to its woes.

Besides NetApp, investors may consider Facebook, Inc. (NASDAQ:FB) , another Zacks Rank #1 stock in the technology sector.

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