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Goldman Maintains Sell On NetApp, Wary Of Competition

NetApp Inc. NTAP reported its F1Q results ahead of expectations and provided in-line guidance. Competitive pressures continue to adversely impact the company’s product margins, Goldman Sachs’ Simona Jankowski said in a report. She maintained a Sell rating on the company, while raising the price target from $23 to $26.

NetApp reported its quarterly revenues at $1.29 billion, beating the GS estimate of $1.28 billion and the Street expectation of $1.26 billion. Non-GAAP EPS came in at $0.46, higher than the GS and Street estimates of $0.36.

The company guided to F2Q sales of $1.265-$1.415 billion and non-GAAP EPS of $0.51-$0.56. Goldman Sachs raised the non-GAAP EPS estimates for FY17, FY18 and FY19 from $2.08 to $2.35, from $2.31 to $2.62 and from $2.44 to $2.75, respectively, to reflect higher revenues and margins.

Intense Price Competition

Analyst Jankowski expressed concern regarding the stiff price competition within the storage market, which continued to exert pressure on NetApp’s product gross margins, which declined by 5pts y/y to reach near a 15-year low in F1Q.

“We see price as a meaningful driver of incremental share gains for incumbent vendors (NetApp included) in the race for flash footprint, and as a result do not expect this dynamic to abate any time soon,” Jankowski commented.

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