By Sam Boughedda
JPMorgan analysts cut NetApp (NASDAQ:NTAP) to Neutral from Overweight and raised Ciena (NYSE:CIEN) to Overweight from Neutral in a note to clients on Tuesday.
They said the firm downgraded NetApp as its favorable view of the company's differentiated cloud offerings and its leadership in AFA for on prem solutions is "balanced by the headwinds faced by the company."
The headwinds include "moderation in Enterprise IT spending, optimization of storage budgets, limited share gains compared to prior with the resurgence of the storage portfolios of incumbents, and most importantly absence of consistency of execution."
"We still expect Storage to still deliver at the high-end of growth expectations for hardware product segments, but we still see downside risks from the combination of pull-back in spending as well as adverse currency impact on top-line growth. NetApp shares are trading at an inexpensive multiple of 11x relative to historical multiples, but we see limited catalysts for a re-rating while potential for downside risks to estimates remains top-of-mind of investors," the analysts wrote.
On Ciena, the analysts said they moved the stock to Overweight as "the long-term drivers of a high-quality business with technology leadership in the optical market with high barriers to entry, combines with the near-term drivers of resilience through an elevated backlog and still robust demand trends from customers."
"While we remain cautious relative to supply, which has been a challenge till lately, we believe moderating demand across the board should help in access to supply, which all together should support the elevated growth expectations in FY23. Ciena's recently issued 3-year growth targets, revenue growth of 10%-12%, is representative of the secular demand drivers for the company with robust investments in wireline capex from service providers, access layer investments from cable/broadband, and datacenter investments from hyperscalers," the analysts said.
"In addition to the above, share gain opportunities in Europe from Huawei displacements and the 5G build-out in India remain upside drivers, implying robust earnings growth in the medium term."