Network Appliance Rallies on Revenue Surprise
Updated from Feb. 17
Strong sales and a weak dollar helped
Network Appliance
(NTAP) - Get Report
deliver a substantial upside surprise after the bell Tuesday, and the company was rewarded with a substantial jump in share prices in early trading on Wednesday.
Shares of the storage vendor were recently up $1.63, or 7.3%, to $23.90.
Despite rumors that it might not deliver more than the bare minimum in its third quarter, the company boosted year-over-year revenue by 30% and doubled its net income.
Net income in the January quarter increased to $40.2 million, or 11 cents a share, on sales of $297.3 million. Wall Street had expected per share net income of 10 cents, a penny lower than the company actually posted, but the increase in revenue was an even bigger surprise. Analysts polled by Thomson First Call had forecast revenue of $290.76 million.
At least part of the top-line surprise was due to favorably currency conditions, which contributed approximately $5 million extra to revenue, noted Needham analyst Glenn Hanus. (Needham does not have an investment banking relationship with Network Appliance.)
The company also delivered a sizable upside surprise in its forecast for the fourth quarter, saying it expects top-line growth of 7% to 9%, equivalent to revenue ranging from $318.11 million to $324.06 million. Analysts had projected revenue of $304.6 million. Pro forma earnings, the company predicted, will be 11 cents or 12 cents, slightly better than the 10 cents to 12 cents forecast by analysts.
Another positive in the third quarter was a two-percentage-point jump to 31% in the percentage of revenue attributed to software, an important metric as hardware prices and margins continue to decline.
Although the company is trading at a substantial premium to some of its peers -- about 46 times expected 12-month forward earnings -- Goldman Sachs analyst Brenden Smith said in a note to clients that he nevertheless sees some upside. The stock could settle into a new fair value range of $23 to $24 a share over the intermediate term, he said. (Goldman has done investment banking for Network Appliance.)