Should You Invest in NetApp for Long-Term Gains? NetApp (NTAP) delivered a solid performance in the fourth quarter of 2024, beating analysts' estimates on both top and bottom lines. Further, the company's outlook appears promising, driven by solid...
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NetApp (NTAP) delivered a solid performance in the fourth quarter of 2024, beating analysts' estimates on both top and bottom lines. Further, the company's outlook appears promising, driven by solid demand for its innovative data storage and CloudOps solutions and strategic initiatives. So, should you invest in this stock for long-term gains? Read more to find out.
With a $26.27 billion market cap, NetApp, Inc. (NTAP) is an intelligent data infrastructure company combining unified data storage, integrated data services, and CloudOps solutions, transforming a world of disruption into an opportunity for every customer. It reported solid fourth-quarter and full-year results amid surging demand for cloud-based data management solutions.
NTAP reported fourth-quarter revenue of $1.67 billion, surpassing analysts' estimate of $1.65 billion. Its Hybrid Cloud segment revenue was $1.52 billion, up 6.3% year-over-year. NetApp Public Cloud annualized revenue run rate (ARR) came in at $630 million, compared to $6.20 million in the prior year's quarter.
The intelligent data infrastructure company posted a non-GAAP net income per share of $1.80, compared to the consensus estimate of $1.79. Also, during the quarter, NTAP returned $1.32 billion to shareholders through share repurchases and cash dividends, underscoring its commitment to delivering value to investors.
Furthermore, NetApp announced a rise in its quarterly dividend to $0.52 per share and a new share repurchase authorization of an additional $1 billion.
"Our modern approach to unified data storage, spanning data types, price points, and hybrid multicloud environments, is clearly resonating in the market," said NTAP's CEO George Kurian. "In fiscal year 2025, we will remain laser focused on our top priorities of driving growth in all-flash and cloud storage services while maintaining our operational discipline."
For the first quarter of fiscal 2025, NTAP expects revenue of $1.46-$1.61 billion. The company's non-GAAP EPS for the ongoing quarter is expected to be $1.40-$1.50. For the fiscal year 2025, NetApp projects revenue and non-GAAP EPS of $6.45-$6.65 billion and $6.80-$7, respectively.
NTAP's stock has gained 42.5% over the past six months and 75.7% over the past year to close the last trading session at $127.64. Moreover, the stock soared 14.2% over the past month.
Here is what could impact NTAP's performance in the upcoming months:
Positive Recent Developments
On June 20, NTAP announced that Spot by NetApp achieved FinOps Foundation's Certified Platform certification, validating the platform's ability to offer the depth and breadth of capabilities organizations need to practice sound cloud financial management. Further, Spot by NetApp expanded its certified platform with the general availability of its Cost Intelligence and Billing Engine solutions.
On May 14, NTAP and Lenovo Group Ltd (LNVGY) took their strategic partnership to the next level by introducing NetApp AIPod with Lenovo ThinkSystem servers for NVIDIA OVX, a simple, affordable, and robust infrastructure solution optimized for the generative AI (GenAI) era.
"Through our collaboration with NVIDIA and Lenovo, NetApp is empowering organizations to harness the capabilities of AI more efficiently, ensuring that they can focus on creating value and gaining insights from their data without the complexity of building and managing AI infrastructure from scratch," said Sandeep Singh, Senior Vice President & General Manager, Enterprise Storage at NTAP.
Further, on the same day, NetApp unveiled unified data storage powered by the new AFF A-Series systems that can power demanding IT workloads, such as GenAI, VMware, and enterprise databases. Also, the company introduced expanded capabilities across its portfolio to help customers operate more efficiently as they leverage their data to drive innovation.
Solid Financials
For the fourth quarter that ended on April 26, 2024, NTAP's net revenue increased 5.7% year-over-year to $1.67 billion. Its non-GAAP gross profit rose 9.3% from the year-ago value to $1.19 billion. Its non-GAAP income from operations grew 13.3% year-over-year to $469 million. Its non-GAAP income before income taxes was $483 million, up 15.3% from the prior year's quarter.
Furthermore, the company's non-GAAP net income came in at $383 million or $1.80 per share, increases of 14.4% and 16.9% year-over-year, respectively. Its free cash flow grew 189.3% year-over-year to $567 million. As of April 26, 2024, NTAP's cash, cash equivalents and investments were $3.25 billion.
Impressive Historical Growth
NTAP's revenue has grown at a CAGR of 3% over the past three years. Its EBITDA and bet income have increased at CAGRs of 10.7% and 10.5%, respectively, over the same period. Also, the company's EPS has grown at a CAGR of 12.8% over the same timeframe, and its levered free cash flow has improved at a CAGR of 8%.
Favorable Analyst Expectations
Analysts expect NTAP's revenue for the first quarter (ending July 2024) to grow 6.5% year-over-year to $1.53 billion. The consensus EPS estimate of $1.45 for the current quarter indicates a 26.4% year-over-year increase. Also, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.
For the fiscal year ending April 2025, Street expects NetApp's revenue and EPS to grow 4.5% and 6.5% year-over-year to $6.55 billion and $6.88, respectively. In addition, the company's revenue and EPS for the fiscal year 2026 are expected to increase 4.7% and 7.2% from the previous year to $6.86 billion and $7.38, respectively.
Solid Profitability
NTAP's trailing-12-month gross profit margin of 70.72% is 42.3% higher than the 49.69% industry average. The stock's trailing-12-month EBIT margin of 20.23% is 324.1% higher than the 4.77% industry average. Similarly, its trailing-12-month net income margin of 15.73% is significantly higher than the 454.95% industry average.
Moreover, the stock's trailing-12-month ROCE, ROTC, and ROTA of 85.55%, 20.74%, and 9.97% favorably compared to the industry averages of 4.20%, 2.68%, and 1.69%, respectively. Its trailing-12-month levered FCF margin of 22.65% is 124.1% higher than the industry average of 10.11%.
POWR Ratings Reflect Promise
NTAP's sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NTAP has an A grade for Quality, consistent with its higher-than-industry profitability. Also, the stock has a B grade for Growth, in sync with its outstanding historical growth and solid financial performance in the last reported quarter.
Within the B-rated Technology-Hardware industry, NTAP is ranked #8 out of 38 stocks.
Beyond what I have stated above, we have also given NTAP grades for Sentiment, Value, Stability, and Momentum. Get all NTAP ratings here.
Bottom Line
NTAP concluded fiscal year 2024 on a solid note, achieving company records in annual gross margin, operating margin, EPS, operating cash flow, and free cash flow, establishing positive business momentum. Further, analysts appear bullish about the company's prospects, driven by solid demand for innovative solutions, strategic initiatives, and management competence.
NTAP's stock is currently trading above its 50-day and 20-day moving averages of $111.88 and $92.73, respectively, indicating an uptrend.
Given NetApp's robust financial performance, accelerating profitability, reliable dividends, and bright growth outlook, investing in this stock for long-term gains seems wise now.
How Does NetApp, Inc. (NTAP) Stack Up Against Its Peers?
While NTAP has an overall POWR Rating of B, investors could also check out these other stocks within the B-rated Technology-Hardware industry with an A (Strong Buy) rating: Seiko Epson Corporation (SEKEY), SigmaTron International, Inc. (SGMA) and Lantronix, Inc. (LTRX).
For exploring more A and B-rated tech hardware stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with a trading plan and top 11 picks for the year ahead.
NTAP shares were unchanged in premarket trading Monday. Year-to-date, NTAP has gained 46.31%, versus a 14.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet's keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet's looks to help retail investors understand the underlying factors before making investment decisions.
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