NetApp Draws Negative Analyst Views After Revenue Forecast Cut

NetApp shares fell as analysts issued negative commentary on the data-storage and -management provider after it pared its revenue estimate and its earnings came up short of estimates. Analysts also cited the departure of NetApp's CFO.
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NetApp  (NTAP) - Get Report shares dropped as analysts issued negative commentary on the data-storage and -management provider after it slashed its revenue estimate and failed to meet expectations in its latest earnings report.

In addition, NetApp said CFO Ron Pasek would retire by March 24 after four years with the company. 

For fiscal 2020 ending March 24, the company predicted revenue would fall 10% from a year earlier. In its previous earnings report, NetApp estimated an 8% decline.

In the fiscal third quarter ended Jan. 24 NetApp earned $1.21 a share compared with 98 cents in the year-earlier quarter. The latest adjusted number was $1.16 a share. Revenue fell 10% to $1.4 billion.

A survey of analysts by FactSet was looking for adjusted earnings of $1.18 a share on revenue of $1.46 billion.

Analysts say competition will eat into the Sunnyvale, Calif., company’s market share. And Pasek’s departure represents “a yellow flag highlighting risk,” Raymond James analyst Simon Leopold wrote in a report, according to Bloomberg.

“The overall environment remains consistently challenging, and delays in closing [enterprise license agreements] exacerbate the lumpiness,” he said. Leopold has a market-perform rating on the stock.

William Blair analyst Jason Ader wrote in a report that the revenue drop forecast by NetApp constitutes a major problem and that it was caused partly by “poor sales execution,” according to Bloomberg.

“The big negative surprise in the quarter was product sales,” which fell more than expected and “more than offset relative strength in maintenance and service,” Ader said. He also pegs the stock at market perform.

To be sure, Ananda Baruah, while noting NetApp’s woes, reiterated a buy rating and $70 target price for the stock.

“Margins and cash flow remain quite healthy,” he wrote in a report, according to Bloomberg. 

The failure of the company’s earnings and forecasts to meet expectations isn’t “material enough to alter our thesis,” he said.

At last check, NetApp shares stood at $54, down 11%. 

In 2020 through Wednesday the stock had been down 2.2%. Also through Wednesday, the stock had been up 37% from its 52-week low of $44.55, set in mid-August.