Network Appliance Beats; Margin Outlook Reverses AH Rally

Network Appliance initially surged in after-hours trading Wednesday (gaining as much as 12.7% to $29.98), following its better-than-expected fiscal Q2 earnings release. However, it last traded down 0.6% to $26.45 after comments about the "continued sluggishness" of the U.S. economy and CFO Steven Gomo saying the company plans to cut prices on some products in order to boost market share (full transcript). Q2 net income fell 3.4% to $84 million, or $0.23/share, with adjusted EPS totaling $0.32. Analysts were expecting $0.26/share. Revenues grew 21% to $792M, also topping estimates of $759M. Strong sales to the U.S government and customers in Europe and Asia helped to offset the impact of weaker sales to U.S. companies (especially in the key financial services industry). For its fiscal Q3, Network Appliance forecast EPS of $0.33 to $0.34, on sales of $872M to $883M, compared to analyst estimates of $0.32 on sales of $852.6M. Robert W Baird analysts cited the company's positive outlook for maintaining their Outperform rating, while raising EPS estimates and their target share price to $35. Shares of Network Appliance lost 1.3% to $26.61 on Wednesday.

Sources: Press release, Bloomberg, newratings, TheStreet.com
Commentary: PHW: Riding the Global Tech Wave To Further Gains • Storage Wars: Sun Microsystems vs. Network Appliance • Network Appliance Eating Into Backlog To Hit Numbers?
Stocks to watch: NTAP. Competitors: EMC, HPQ. ETFs: PHW, IAH

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