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NetApp Stock Falls After Goldman Sachs Downgrades to Sell

The NetApp move comes, 'as we begin to factor in a moderating information technology spending environment in 2022,' Goldman says.
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NetApp  (NTAP) - Get NetApp, Inc. Report shares fell Monday after Goldman Sachs downgraded the hybrid cloud services company to sell from neutral and cut its price target to $81 from $85.

The move came, “as we begin to factor in a moderating information technology spending environment in 2022,” said Goldman analyst Rod Hall.

“We note that our proprietary EAI (Expected Activity index) U.S. IT spending indicator has declined materially for a third straight month in September and is off meaningfully from record high levels seen between April and June,” Hall wrote.

NetApp on Monday closed at $90.34, down 4.3%. It has jumped 18% in the past three months.

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“Given the EAI has historically been a good leading indicator of NetApp’s U.S. revenues, we are adjusting our Core Product revenue growth forecast to negative 0.4% from plus 2.1% in fiscal year 2023 (to April),” Hall wrote in a commentary.

“On the positive side of the ledger, NetApp’s cloud execution has been strong and, as a result, our Public Cloud estimates are at the top of the company’s indicated annual recurring revenue range of $450-500 million exiting this year.

“However, we note that the revenue contribution from this business is still only 9% of the company’s estimated revenue in fiscal year 2023. As a result, Public Cloud is unlikely to offset pressure on Product revenue.”

Morningstar analyst Mark Cash assigns NetApp a $60 fair value and no moat

“With our longer-term view of concerns about NetApp carving out a sustainable competitive advantage against larger market participants and cloud-native options, we view shares as overvalued,” he wrote in August.