Entering this year, I've wondered whether NetApp will remain an independent company beyond 2013. Although EMC has gotten the majority of the press coverage, it is NetApp that continues to be the subject of M&A speculation. And if the company continues to produce as it did in its second quarter, M&A will no longer be just mere speculation.
In the most recent quarter, NetApp reported net income of $236 million, or 63 cents per share on revenue of $1.54 billion. Revenues increased 2% year-over-year and improved by 7% sequentially. Not exactly robust numbers, but they were in line with estimates and mirrored EMC's production. But unlike EMC, NetApp showed better profitability.
The company improved gross margins sequentially by half of a point. Too, operating margins produced a significant sequential improvement -- jumping 54%. While this means the company is doing well managing costs, how long can it keep this up? EMC will soon demand that NetApp makes capital investments in areas to grow. But investors rejoiced over the report.Since reaching a recent low of $26, the stock has been up 30%. This means despite lingering questions, the Street is still willing to give the company the benefit of the doubt. With enterprise spending expected to rebound this year, I have Cisco (CSCO - Get Report) and Oracle (ORCL - Get Report) at the top of my list of M&A candidates. Investors should not be surprised if a name like IBM, which has seen its storage business decline by double-digit percentage points, enters the mix of M&A chatter. In the meantime, there will be opportunities for NetApp to prove that its current valuation today is a steal. I expect the stock to trade at $40 by the second half of this year. At the time of publication, the author held no position in any of the stocks mentioned. Follow @rsaintvilus This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.