On Monday, JPMorgan made a notable adjustment to its stance on NetApp (NASDAQ:NTAP), upgrading the stock from Neutral to Overweight and raising the price target to $160 from the previous $150. The upgrade is driven by an anticipated acceleration in revenue growth, which JPMorgan attributes to enhanced IT budgets aimed at datacenter and storage infrastructure, particularly as enterprises prepare to adopt AI use cases.
According to InvestingPro data, NetApp has demonstrated solid performance with a 41% total return year-to-date, while maintaining strong profitability with a 71% gross margin.
The analyst at JPMorgan highlighted that recent share gains by NetApp have been fueled by innovation in its product portfolio, especially the C-series products. Looking ahead, the analyst anticipates further gains not just from the C-series but also from the recent introduction of Block storage (ASA products) and upcoming products based on disaggregated architecture.
InvestingPro analysis reveals that NetApp maintains a strong financial position with moderate debt levels and has consistently maintained dividend payments for 12 consecutive years, demonstrating operational stability. These new offerings are expected to compete effectively with recent advancements from companies like WEKA and VAST Data, which have seen success with Tier 2 Cloud providers.
JPMorgan's positive outlook is also based on the belief that the improving momentum in IT budgets and storage will lead to a growth rate that could reach the mid-point or higher-end of the mid- to upper-single digit range. This growth, coupled with NetApp's resilient gross margins and operating leverage, is expected to lead to significant upside in earnings estimates.
The firm also finds NetApp's valuation multiple of 16x to be relatively inexpensive compared to peers like F5 (FFIV), which boasts higher gross margins typical for hardware companies. This valuation, along with anticipated raises to FY25 growth and margin expectations, underpins the belief that there is room for a re-rating of the stock.
Based on InvestingPro's comprehensive analysis, which includes 12+ additional exclusive ProTips and detailed valuation metrics, NetApp is currently trading near its Fair Value. The company's strong financial health score and 16 recent analyst earnings upgrades further support the positive outlook.
In light of these factors, JPMorgan has revised its FY26 and FY27 estimates upward to reflect the projected modestly higher growth and earnings. The new price target of $160 reflects these adjustments and the analyst's confidence in NetApp's potential for sustained growth and profitability.
In other recent news, NetApp, a significant player in the enterprise storage sector, has been making notable strides in its financial performance. The company reported a 6% year-over-year increase in revenue, totaling $1.66 billion for the second quarter of fiscal year 2025.
Furthermore, NetApp raised its full-year revenue outlook to between $6.54 and $6.74 billion, with earnings per share expected to increase by 13%, falling between $7.20 and $7.40.
TD Cowen and Citi, two prominent analyst firms, have expressed confidence in NetApp's future performance. TD Cowen maintained its Buy rating on NetApp, praising the company's flawless results and highlighting the potential growth opportunities presented by Generation AI technologies. Citi, on the other hand, maintained a Neutral rating but increased the share price target following the company's strong performance.
NetApp's strategy shift towards emphasizing hardware and product refreshes has contributed to its current success, according to TD Cowen. The company's diverse product portfolio, including flash-based storage and public cloud offerings, has led to market share gains. NetApp's partnerships with firms like Google (NASDAQ:GOOGL) Cloud have expanded, and their Keystone storage-as-a-service offering witnessed approximately 55% growth year-over-year.
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