NetApp ( NTAP)

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) and Oracle ( ORCL) 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.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

If you liked this article you might like

Here the One Business That Could Fit 'Perfectly' Inside Meg Whitman's Overhauled Hewlett Packard

HP Enterprise Could Use an Expected Software Windfall to Make Hardware Acquisitions

7 Stocks Trading on Big Volume -- and What to Do With Them Now

EMC Stock Higher, Dell's $63 Billion Deal Closing Next Week

John Paulson Bought These 5 Stocks -- but the Charts Say Sell