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NetApp shares target raised by Susquehanna amid AI market optimism

EditorEmilio Ghigini
Published 06/12/2024, 09:04 AM

On Wednesday, Susquehanna maintained a positive stance on NetApp (NASDAQ:NTAP) shares, increasing the price target to $155 from $138. The firm's analyst cited NetApp's Investor Day as a constructive event, suggesting potential upside to their above-consensus estimates. The revised price target reflects confidence in NetApp's growth prospects, particularly in the artificial intelligence (AI) sector and block storage market share gains.

NetApp's management highlighted during Analyst Day the company's focus on AI opportunities and incremental market share gains in block storage. This aligns with Susquehanna's thesis that the All Flash array category will continue to expand, driven by the ongoing replacement of 10k RPM HDDs, product refreshes, and the growing AI and block storage markets.

The firm anticipates the AI market, which is expected to reach $14 billion by 2027, will particularly benefit NetApp. The company is well-positioned due to its approximately 50% ownership of the unstructured data segment, which comprises 70-80% of enterprise data and is projected to be a key driver for General AI advancements.

NetApp is also expected to capitalize on the increasing needs for AI data preparation, model training, and tuning, as well as runtime argument generation (RAG) and inferencing. The analyst noted NetApp's multi-platform, workload, and data approach to storage, along with enterprise emphasis on data security and governance, as competitive advantages in the AI storage space.

Looking ahead, NetApp's revenue is projected to grow at a mid-to-high single-digit rate on average from fiscal years 2025 to 2027, which is in line with the growth rate of the public/hybrid cloud market.

Additionally, the shift towards All Flash and away from HDD/Hybrid storage, combined with a public cloud gross margin target of 75-80%, is expected to contribute to a gross margin of 71-72% and an operating margin of over 30% by fiscal year 2027. Earnings per share are anticipated to experience double-digit growth, according to Susquehanna's analysis.

In other recent news, NetApp has been in the spotlight due to several significant developments. The company has exceeded expectations with robust fourth-quarter results for the fiscal year 2024, primarily driven by strong demand for its All-Flash Arrays and improved margins.

This led to an increase in revenue projections of around 4.5% year-over-year for FY25E. In addition, NetApp's all-flash array portfolio saw a 17% increase in revenue, reaching an annualized rate of $3.6 billion.

NetApp has also appointed Mike Sakalas as Vice President of U.S. Enterprise Sales, aiming to enhance strategic customer engagements and elevate the customer experience in the U.S. market.

TD Cowen and Argus have shown optimism by raising their price targets and maintaining a Buy rating for NetApp, while firms like Evercore ISI, J.P. Morgan Securities, BCI, US, and Citi Research maintain a neutral rating.

The company anticipates total revenue for the fiscal year 2025 to be between $6.45 and $6.65 billion, with an EPS range of $6.80 to $7.00. NetApp's public cloud revenues are expected to return to healthy growth in FY25E after overcoming subscription-related headwinds. These are some of the recent developments that have been shaping the trajectory of NetApp.

InvestingPro Insights

As we delve into the financial health and market sentiment around NetApp (NASDAQ:NTAP), InvestingPro data provides a snapshot of the company's current standing. NetApp's market capitalization stands robust at $25.82 billion, reflecting its significant presence in the technology sector. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is at 26.55, with a slight adjustment to 25.06 when looking at the last twelve months as of Q4 2024. This could indicate that investors are expecting growth and are willing to pay a premium for the company's earnings potential.

Notably, NetApp's revenue over the last twelve months has reached $6.268 billion, despite a slight contraction of 1.48%. However, quarterly growth has shown a positive uptick of 5.5%, suggesting a potential rebound. The company's gross profit margin is strong at 70.72%, showcasing its efficiency in managing production and operational costs relative to its revenue.

From an investment standpoint, two InvestingPro Tips highlight NetApp's strategic financial maneuvers and market performance. The company has been actively engaging in share buybacks, a move that often signals management's belief in the company's undervalued shares and a commitment to delivering shareholder value. Moreover, NetApp has demonstrated a high shareholder yield, which combines dividend payments and share repurchases to give a fuller picture of the return on investment. For those interested in further insights, there are 17 additional InvestingPro Tips available, which can be accessed for a deeper analysis of NetApp's market position and future potential.

To empower your investment decisions with more comprehensive data and expert analysis, consider subscribing to InvestingPro. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and unlock the full suite of benefits that InvestingPro has to offer.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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