NetApp, Inc. NTAP witnessed impressive share price performance over the past year, on the back of strong fundamentals.
Notably, the stock has gained 68.6% in the past year, substantially outperforming the industry’s rally of 22.2%.
We suggest you buy the stock at the moment as the odds in favor of an upside in the near-term are high. Moreover, this Zacks Rank #2 (Buy) stock along with long-term EPS growth rate of 10.34%, makes it more lucrative.
To add to the positives, NetApp has a VGM Score of A. Per the Zacks model, a portfolio comprising stocks with a Zacks Rank #1 (Strong Buy) or 2 combined with a Style Score of A or B increases chances of better returns.
Upbeat Q4
NetApp delivered fiscal fourth-quarter 2018 non-GAAP earnings of $1.05 per share, beating the Zacks Consensus Estimate of $1.01 per share. The figure surged 22.1% on a year-over-year basis.
Revenues of $1.64 billion increased 11% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $1.59 billion.
The impressive fourth-quarter results were driven by strong product adoption, increasing deal wins, and expanding customer base across varied geographies. Moreover, the company’s transition to data fabric strategy (a software-defined approach to data management) is enhancing business opportunities.
Additionally, the company increased momentum of its HCI and expanded new cloud partnerships, which contributed to overall revenue growth.
Impressive Guidance
For first-quarter fiscal 2019, NetApp expects non-GAAP earnings in the range of 76-82 cents per share. The Zacks Consensus Estimate for the quarter is currently pegged at 79 cents.
Net revenues are anticipated to be in the range of $1.365-$1.465 billion, which implies growth of 6.8% at the mid-point from the year-ago quarter. The Zacks Consensus Estimate is pegged at $1.41 billion.
In the first-quarter of fiscal 2019, NetApp intends to double its quarterly dividend to 40 cents per share, payable on Jul 25, 2018. As a matter of fact, smart investors give priority to a dividend paying stock compared with non-dividend paying ones.
For fiscal year 2019, net revenues are anticipated to increase in mid-single-digits. The company envisions EPS growth rate to be more than 15%.
Positive Earnings Surprise History
NetApp displays a remarkable earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 11.02%.
Healthy Balance Sheet & Solid Cash Position
NetApp has a consistent record of returning cash through share repurchase and dividend payouts. The company has returned $1.01 billion during fiscal 2018. We believe that the NetApp’s healthy balance sheet and strong cash generating abilities help it to make shareholder-friendly moves.
The company generated operating cash flow of $494 million (up 17.6% sequentially) and ended fourth-quarter fiscal 2018 with cash, cash equivalents and investments of $5.39 billion.
Other Positives
NetApp is witnessing higher demand for its flash-based solutions. During fourth-quarter fiscal 2018, revenues from all-flash-array business which includes All-Flash FAS, EF and SolidFire product and services grew 43% year over year to an annualized net revenue run rate of approximately $2.4 billion.
NetApp’s expertise in the flash array market is aiding its popularity in storage area network (“SAN”) and converged infrastructure markets. The company’s launch of hyper-converged infrastructure is also anticipated to be a positive, going forward.
Moreover, NetApp’s extended partnership with Microsoft MSFT for the development of the industry’s first cloud-based enterprise Network File System (“NFS”) to be delivered via Azure is anticipated to bolster the top line.
Our Take
We remain hopeful of the momentum of its hybrid cloud business. Its differentiated product portfolio and strong distribution channels are expected to keep demand and adoption of the products strong going forward.
We expect the aforementioned factors to help the company sustain strong momentum and stay afloat, going ahead. Consequently, we suggest investors to add the stock to their portfolio at the moment.
Key Picks
Some other top-ranked stocks in the broader technology sector are Mellanox Technologies, Ltd. MLNX and Micron Technology Inc. MU, both currently flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The projected long-term earnings growth rate for Mellanox and Micron are 15% and 10%, respectively.
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