NetApp’s shares have been soaring, showing a remarkable 51.1% gain year to date. This significant growth overshadows the industry’s 47.1% rise and even outperforms the S&P 500 composite’s 16.6% increase.
NetApp, headquartered in San Jose, CA, is a key player in enterprise storage, providing top-notch data management software and hardware solutions. The company aids enterprises in navigating the complexities of managing multiple cloud environments, incorporating cutting-edge technologies like artificial intelligence and Kubernetes, and adapting to the swift evolution of data and cloud usage.
With robust fundamentals and promising growth opportunities, this Zacks Rank #2 (Buy) stock seems like a compelling investment choice currently.
Apart from its favorable ranking, NetApp boasts of a Growth Score of B. According to Zacks’ unique methodology, stocks rated #1 (Strong Buy) or 2, paired with a Growth Score of A or B, present excellent investment prospects.
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The stock is currently trading 13.9% below its 52-week high of $135.01, indicating further potential for an upward surge.
Driving Factors Behind the Performance
NetApp’s revenue growth is being fueled by strong demand across its all-flash and cloud storage portfolio. The shifting landscape towards data-driven digital transformations, cloud computing, AI, data security, and application modernization serves as key catalysts for growth.
The company’s latest AFF A-series, alongside the C-series and ASA products, is expected to capture a larger market share in the all-flash storage segment.
With the current AI-driven environment pushing organizations to innovate swiftly and enhance productivity, NetApp’s new product offering aims to provide intelligent data infrastructure, unlocking the power of AI-driven insights. The AFF A-Series systems are extending the company’s reach in unified data storage for next-gen workloads.
In the fourth quarter of fiscal 2024, NetApp’s All-Flash Array Business achieved an annualized net revenue run rate of $3.6 billion, marking a 17% increase year over year. Total billings also saw an 8% year-over-year rise to $1.8 billion.
Furthermore, continuous product launches, enhanced go-to-market strategies, and strategic cloud partnerships are bolstering NetApp’s revenue growth. The company’s stringent cost-control measures are also contributing to improved margins.
NetApp’s robust portfolio of ransomware protection solutions is expected to gain traction amidst escalating cybersecurity threats. Leveraging hyper-scaler partnerships and integrated storage services, NetApp is well-positioned to tap into the rising demand for generative AI.
Looking ahead, NetApp anticipates its strengthened position in addressing critical customer needs such as business analytics, AI, cloud transitions, data security, and application modernization to drive further expansion.
Sound Capital Allocation Strategy
As of April 26, 2024, NetApp held cash, cash equivalents, and investments amounting to $3.252 billion, with long-term debt at $1.992 billion. In the fiscal fourth quarter, the company generated a net cash flow from operations of $613 million, a significant leap from $235 million in the prior-year quarter. Free cash flow stood at $567 million, with a free cash flow margin of 34%, compared to $196 million in the previous year’s quarter, with a margin of 12.4%.
NetApp’s sturdy balance sheet enables it to pursue shareholder-friendly initiatives, including dividend payouts and share repurchases. In the last fiscal quarter, the company returned $204 million and $1.32 billion to shareholders through dividends and buybacks, respectively. NetApp also announced a 4% increase in its quarterly dividend and an additional $1 billion share repurchase authorization.
Estimates Activity
Analysts project NetApp’s revenues to reach $6.55 billion and $6.81 billion in fiscal years 2025 and 2026, respectively, translating to year-over-year growth of 4.4% and 4.1%. Earnings per share for the same periods are anticipated to rise by 6.2% and 7.1% year over year, reaching $6.86 and $7.34.
Moreover, the Zacks Consensus Estimate for NetApp’s earnings per share in fiscal 2025 and 2026 has seen a 3.2% and 3.1% increase, respectively, over the past 90 days, reflecting optimistic analyst sentiments.
Challenges on the Horizon
Despite its strong performance, NetApp faces challenges from an unfavorable macroeconomic landscape and supplier-driven price hikes in NAND products. Additionally, stiff competition from Pure Storage in the all-flash storage and cloud-based solutions space remains a notable headwind for the company.
Exploring Other Investment Opportunities
Investors eyeing the technology sector may also find interest in other top-ranked stocks such as Badger Meter, SAP SE, and Generac Holdings. Badger Meter holds a Zacks Rank #1, while SAP and Generac carry a Zacks Rank #2 currently.
Badger Meter is estimated to achieve an EPS of $4.06 in 2024, reflecting a 3% increase in the past month. The company has consistently outperformed the Zacks Consensus Estimate in its earnings over the last four quarters, boasting an average surprise of 12.9% and a long-term earnings growth rate of 17.9%. Its stock has risen by 15.7% in the past year.
Generac Holdings, with a projected 2024 earnings per share of $6.44, has seen a 4.5% increase in estimates over the last week. The company delivered earnings beats in three of the last four quarters, with an average surprise of 9.75% and a long-term earnings growth rate of 12%. Generac’s shares have surged by 28.4% over the past year.
SAP SE is forecasted to achieve an EPS of $4.75 in 2024. Although SAP’s earnings have slightly missed estimates in two of the last four quarters, the stock has witnessed a strong performance, surging by 48.7% in the past year.