Storage may offer a bright spot for investors in the slowly-recovering economy, as M&A chatter again swirls around NetApp ( NTAP). "We do believe it would make sense for a larger IT company to acquire NetApp as it would be attractive from a product portfolio and accretion perspective," wrote Brian Marshall, an analyst at Broadpoint AmTech, in a note released Tuesday. The storage specialist could be particularly attractive to a "more mature" IT company like Cisco ( CSCO), IBM ( IBM) or Hewlett-Packard ( HPQ), he added. Although not exactly the tech sector's equivalent of The Graduate, there has already been speculation touting NetApp as a possible target for the cougar-like IBM. Increasingly seen as one of the hottest stocks in the vibrant storage space, it is hardly surprising that the firm has popped up as a potential M&A target. With a market cap of around $7.53 billion, NetApp would not come cheap, but would be significantly less expensive than three years ago, when the firm was valued at more than $12 billion. This, of course, is very much conjecture, although NetApp is grabbing plenty of attention from analysts buoyed by its recent performance. Despite losing out to rival EMC ( EMC) in the battle to acquire Data Domain ( DDUP), NetApp still reeks of upside, according to Broadpoint AmTech's Marshall. "The company offers one of the highest growth profiles in the entire technology industry," he wrote, explaining that NetApp has averaged 28% growth over the last five years. EMC, in contrast, averaged 19% growth over the same period, he added. Citing its strength in mid-range storage, the analyst reiterated his NetApp "Buy" rating, and looked ahead to the firm's first-quarter results, which are expected in late August.
"We believe the company will highlight stability in order patterns from its customers and offer sequential revenue guidance for the October '09 quarter in the mid-single-digit range," he wrote. "We believe NetApp continues to offer investors tremendous earnings leverage in calendar year 2010." Analysts surveyed by Thomson Reuters expect NetApp to post first-quarter revenue of $823.34 million and earnings of 19 cents a share, compared to $869 million and 22 cents a share in the same period last year. Jayson Noland, an analyst at R.W. Baird, pointed to feedback from 15 NetApp resellers, which suggests a "relatively positive" view of the firm's business. In a note released Monday, the analyst maintained his 'outperform' rating on NetApp's stock, and explained that the firm does not need to pursue its own M&A strategy. "The Data Domain outcome has naturally lead to acquisition speculation," he said, adding that Riverbed ( RVBD) , CommVault ( CVLT) and 3Par ( PAR) had been touted as potential targets. "
But we do not believe NetApp needs to hurry into any transaction or pursue a broad "end-to-end" data center solution." NetApp is not the only storage company attracting positive attention at the moment. Analyst firm Jefferies & Company, for example, raised its Brocade ( BRCD) price target from $9 to $10 ahead of the company's third-quarter results later this month. Specifically, the firm's integration of Foundry Networks is proceeding apace, according to Jefferies analyst Munjal Shah. "Brocade is executing well and has successfully completed the most critical sales force integration," he wrote, in a note released Tuesday. "Distractions were relatively minor, attrition remains low and overall integration was smooth."
The San Jose, Calif.-based firm, which recently extended its partnership with IBM, is expected to post revenue of $503.7 million and earnings of 11 cents a share, according to Thomson Financial. The Wall Street Journal recently reported that Dell ( DELL) was planning a significant acquisition, possibly in services or storage, where it has a long-standing partnership with Brocade. With a market capitalization of just over $3.6 billion, Brocade would not exactly break the bank, although it seems likely that the storage specialist will opt to pursue partnerships over M&A. All the signs, after all, are pointing to Brocade's ability to deliver shareholder value as a standalone entity.