Morningstar | NetApp Benefitting From All-flash Array Demand and Cloud Migration; Maintaining $60 FVE
No-moat NetApp's revenue growth of 7% year over year was in line with our expectations while its earnings of $0.91 per share beat our forecast. The bottom-line results were spurred by sales and marketing reductions and a reduced tax rate. NetApp's third-quarter guidance aligned with our previous expectations, and we are maintaining our longer-term forecast and fair value estimate of $60 per share. With NetApp trading down 6% after hours, we recommend investors wait for a wider margin of safety for this name.Compared with the prior year, product revenue grew by 11%, software maintenance grew 5%, and hardware maintenance declined by 1%. We reiterate our near-term thesis that NetApp will continue to experience strength from all-flash array sales and cloud management solutions. All-flash array products now have a $2.2 billion annual revenue run rate, which is an increase of 29% year over year. In our view, NetApp's operating margin (19% in the quarter) should continue to expand over the next few quarters as the company sells more higher-margin all-flash arrays, hyperconverged infrastructure, and cloud-based solutions. NetApp is shifting its focus to become part of a multi-cloud strategy by showcasing interoperability with hyperscale cloud providers, and we believe that early technology adopting firms will seek out NetApp's software to complement its all-flash storage arrays. We posit that NetApp's product portfolio is currently in high demand due to enterprises migrating to public and private clouds, but we expect tough competition to pose longer-term concerns after the initial all-flash array spending surge.
The company returned $631 million to shareholders in the second quarter, with $561 million of the total being via share repurchases.
NetApp is the data authority for the hybrid cloud. The company's product, services and solutions portfolio include: cloud data services, which include the NetApp Data Fabric, which manages, secures, and protects the data of its customers from on-premises to public to hybrid cloud; cloud infrastructure, which helps customers build cloud-architected data centers; storage systems and software, which enables customers to modernize their IT architectures with cloud-connected flash to free the resources necessary; and support services, which enable a portfolio of technical services including independent support services, support account managers, residency services, and managed services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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