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NetApp Is Gearing Up To Breakout After Earnings Top Estimates

NetApp stock price forecast

NetApp, Inc. (NASDAQ: NTAP) reported earnings for their fourth quarter ending April 2023 yesterday after the close and topped consensus estimates. While the outlook for the storage systems and data management solutions company was mixed, the slight uptick in the extended session and set up on a higher timeframe leads me to believe that NTAP could be a strong breakout candidate.

NetApp provides storage and data management solutions that cater to the needs of companies, government entities, and educational institutions globally. The company’s extensive offering includes specialized hardware, software, and services designed to facilitate storage management in open network environments.

NetApp Earnings Top Estimates

The company reported quarterly earnings of $1.54 per share, topping the consensus estimate of $1.35. CEO of NetApp, George Kurian, said: “Our sharpened focus and disciplined execution yielded solid Q4 results in a dynamic environment. Digital transformation projects involving business analytics, AI, data security, and application modernization, both on premises and in the cloud, remain top IT priorities.”

Total revenue reported for the quarter was $1.58 billion, topping consensus estimates. The beat is primarily thanks to product revenue, with the company reporting $744 million vs. the $712 million consensus estimate. The company reported a substantial increase in gross margin for products, reporting 55.1% versus consensus estimates of 47.7%. The services’ gross margin was about in line at 81.4%. 

Going forward, the company expects first-quarter non-GAAP earnings of $1.00 to $1.10 per share on revenue of $1.325 billion to $1.475 billion. That outlook is slightly lower than the current earnings estimate of $1.19 per share on revenue of $1.48 billion for the quarter. The full-year outlook, however, topped estimates, with the company expecting EPS of $5.65 - $5.85 on revenue of $5.95 billion to $6.30 billion. The consensus estimate is $5.84 EPS on revenue of $6.17 billion for the fiscal year ending April 30, 2024.

CEO George Kurian said: “We are entering FY24 with substantial new innovations and a more focused operating model to better address the areas of priority spending. I am confident in our ability to drive long-term growth, extend our leadership position, and deliver increasing value for customers, partners, and shareholders.”

Analyst Ratings and Institutional Flow

Based on 22 analyst ratings, NetApp has a predicted upside of 11.89%, with a consensus price target of $74.24. The current consensus rating of NetApp is Hold, with 10 analysts rating Hold, 9 Buy, and 3 Sell. 

Over the previous twelve months, NetApp has seen institutional ownership rise to 87.92% after a net institutional flow of $440 million into the stock. 

Current insider ownership is at 0.26% and has been steadily declining. In the last twelve months, $5.71 million worth of stock has been sold by insiders compared with $360,200 of insider buying. 

Should You Invest?

NTAP has an attractive P/E ratio of 11.42, making it a potential value play for investors. The company has a dividend yield of 3.01% and trades below the consensus price target estimate of $74.24.     

NetApp stock price  

On a higher timeframe, NTAP has been consolidating above the 200-day SMA for about a year, between $60 and $70. Post-earnings, the stock is trading over the short-term resistance of $70. If the stock can hold over $70 in the coming days and discover newfound support over previous resistance, a move towards $75 and $80 might be possible in the short to medium term.

With an increased outlook for the full fiscal year and a breakout pattern shaping up on the chart, NTAP might be gearing up for a higher timeframe move higher.

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