NetApp: Picking Up Positive Catalysts Prior To Earnings

| About: NetApp, Inc. (NTAP)

NetApp (NASDAQ:NTAP) reports its third quarter results tomorrow. The storage provider has underperformed the market over the last year and the stock is lower than it was 12 months ago. However, the company has received a lot of positive mentions by analysts and commenters in the last few days which could provide catalysts to better stock performance in the near future. It also appears cheap on valuation.

Recent positive mentions, catalysts and comments:

  • It announced an important partnership with SAP Inc. (NYSE:SAP) on Thursday.
  • BMO Capital came out Friday with remarks saying it does not believe EMC Corp (EMC) will be able to steal market share from NTAP in 2013 like it did in 2012.
  • The company received a nice mention in a Barrons feature story this weekend as a stock that could benefit by accelerated corporate spending in 2013.
  • On Monday, JPMorgan's Mark Moskowitz mentioned that Apple (NASDAQ:AAPL) and NetApp are his favorite large-cap tech plays right now.
  • Brean Murray upgraded the shares from "Hold" to "Buy" and lifted its price target to $45 a share.

NetApp designs and manufacturers networked storage solutions. The company supplies enterprise storage and data management software, and hardware products and services.

4 reasons NTAP has upside from under $36 a share:

  1. The company has a robust balance sheet which has over $4B in net cash on the books (over 1/3 of market capitalization).
  2. The stock sells at under 14.5x forward earnings (under 10x subtracting cash), a discount to its five year average (17.9).
  3. The company has grown revenues at better than a 16% CAGR over the past five years and the stock is selling near the bottom of its five year valuation range based on P/CF and P/B.
  4. The company has grown operating cash flow by approximately 50% since FY2010. Sales are projected to accelerate to 8% for FY2014 (starts in April) from 2% sales growth in FY2013.

Disclosure: I am long EMC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: May pick up bull call spread on NTAP today prior to earnings tomorrow.