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On Monday, Citi analysts revised their price target on NetApp (NASDAQ:NTAP) shares, reducing it to $110.00 from the previous $135.00, while keeping a Neutral rating on the stock. The stock, currently trading at $98.35, has fallen about 19% in the past week, pushing it near its 52-week low. According to InvestingPro analysis, NetApp appears slightly undervalued at current levels. The adjustment follows NetApp’s fiscal third-quarter 2025 results, which saw a revenue shortfall attributed to delayed deals and unfavorable foreign exchange rates. The company’s international public sector was notably affected.
NetApp’s guidance for the upcoming period also fell short of expectations, influenced by the anticipated continued impact of foreign exchange issues, the divestiture of its Spot business, and some weaknesses in the Global Public Sector. Despite these challenges, the company maintains strong fundamentals with a 70.6% gross profit margin and an impressive track record of 13 consecutive years of dividend payments. The projected Product Gross Margin (GM) for the fourth quarter stands at 56%, which the management anticipates to be the lowest point. They expect pricing actions to start having an effect by the end of the fourth quarter, along with a forecast for lower NAND pricing in the first half of fiscal year 2026, ending in October.
Management expressed confidence that the recent misses were not due to competitive losses, which is seen as a positive sign. However, Citi analysts pointed out that failures in execution tend to heighten investor scrutiny. Despite the current challenges, NetApp’s long-term outlook remains optimistic, bolstered by the company’s strength in Advanced Software (ETR:SOWGn) Architecture (ASA) and new product developments in Flash and Artificial Intelligence.
Citi’s revised estimates reflect a slight decrease based on a 14x Price to Earnings (PE) multiple on the next 24 months, down from the previous 15x multiple. This change underpins the new price target of $110, as the analysts maintain a Neutral stance on NetApp shares.
In other recent news, NetApp Inc. reported its third-quarter fiscal year 2025 earnings, revealing a slight beat on earnings per share (EPS) but a miss on revenue expectations. The company posted an EPS of $1.91, just above the forecast of $1.90, while revenue came in at $1.64 billion, falling short of the expected $1.69 billion. This discrepancy in revenue, despite a 2% year-over-year increase, was significant enough to impact investor sentiment negatively. NetApp’s public cloud revenue showed a notable 15% year-over-year increase, and the company maintained a strong operating margin of 30%. However, the earnings announcement led to a sharp decline in NetApp’s stock, reflecting investor disappointment with the revenue miss. For the full fiscal year, NetApp has adjusted its revenue guidance to between $6.49 billion and $6.64 billion, anticipating a 5% growth at the midpoint. In other developments, the company announced the divestiture of its Spot by NetApp business, which is expected to close in early March, impacting future revenue projections. Despite these challenges, NetApp remains focused on improving execution and maintaining strong operating margins.
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