NetApp Could Net Solid Growth - Barron's

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Includes: CSCO, DELL, DVMT, HPQ, IBM, NTAP, ORCL
by: Rachael Granby

The economy may be weakening, but the need for digital data storage certainly isn't. This is good news for NetApp (NASDAQ:NTAP), writes Barron's Mark Veverka, which could see 10-15% growth this year and 15-20% in 2010.

NetApp provides data-storage technology and software that allows companies to manage their data centers more efficiently. Since efficient data-storage can create significant cost savings for companies, data-storage tech remains a priority for most corporate and government entities despite spending cutbacks elsewhere.

NetApp's five-year compound annual sales-growth rate is 23%, though revenue is expected to slow for the fiscal year ending in April. The company has a healthy core client base, with the government accounting for around 16% of NetApp's $3.3B in 2008 revenues.

Trailing EMC (EMC), NetApp is the second largest storage outfit in terms of capacity share for the open-systems networked storage market. Unlike the data-systems units offered by some competitors, NetApp's line is based on 'unified' software, providing more efficiency and more bang for the buck.

NetApp's competitive advantage and potential growth rate aren't reflected in its $16.14 share price. Shares trade at just 12.7 consensus earnings estimates for FY 2010 vs. EMC's multiple of 14. The stock has begun to attract value-oriented tech investors, and corporate buyers might not be too far off.

A solid company with a cheap stock can become an attractive takeover target, and an acquisition of the company could potentially pull in an offer as high as $30/share. Potential acquirers include: Dell (DELL), IBM (NYSE:IBM), H-P (NYSE:HPQ), Oracle (NYSE:ORCL) and Cisco (NASDAQ:CSCO).

The company reports quarterly earnings on Wednesday.

  • Sushil Wagle, senior VP at money manager Seligman Technology Group, expects storage sales will stay positive despite the economic downturn and could post growth in the mid-single digits. He thinks NetApp, however, will outpace the industry, and future growth of 15-20% "wouldn't be out of the question."
  • Paul Wick, who runs the Seligman Communications & Information Fund, sees NetApp at least 25% higher, to around $25-$30.

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  • NetApp: FQ2 EPS of $0.28 beats by $0.01. Revenue of $912M (+15.2%) vs. $905M. (PR)
  • In December, NetApp made Glassdoor's top-ten list of best businesses to work for.