NetApp's Still Heading to $50

NEW YORK ( TheStreet) -- It doesn't take much for an already finicky group of investors to hop off a tech company's bandwagon, especially when that company is entrenched behind a market leader that can presumably do no wrong. This seems to be what has happened to NetApp ( NTAP), whose stock has been down as much as 5% since the company reported fiscal first-quarter earnings.

While I won't deny that NetApp's fight for market share against rival EMC ( EMC) in the enterprise storage space has been a struggle, it's not as if NetApp hasn't been making meaningful dents. EMC remains the undisputed leader, yes. But in the process, not only has NetApp steadily built its storage/cloud capabilities, but the company has also bloodied the noses of less formidable storage rivals like IBM ( IBM), Dell ( DELL) and Hewlett-Packard ( HPQ) - all of which have essentially fallen off the grid in realm of Big Data.

To that end, I believe that the Street has exaggerated NetApp's first-quarter numbers, which I will admit weren't stellar. But nevertheless, NetApp's 5% year-over-year increase in revenue is nothing to shake a stick at. Let's not forget that the enterprise spending recovery on which several prominent analysts have mortgaged their reputations, has yet to materialize. The earnings reports and weak guidance that we've seen so far from the likes of Brocade ( BRCD) and Cisco ( CSCO) suggest that companies are still (to some degree) starving themselves. But they can only do so for so long.

So I refuse to buy the argument that's now being sold by some analysts that NetApp is now a company on the decline. This is even though NetApp posted not only a 4% increase in product revenue, but a 9% increase in the company's branded business - its largest increase in almost two years. And even though management did offer somewhat downbeat guidance, I was encouraged by the fact that management said that the company should post similar branded revenue growth in the second quarter.

The branded business, which consists of NetApp's industry-leading ONTAP storage operating system, is one area where the Street continues to discount NetApp's growth potential. And given NetApp's ability to deliver solid enterprise solutions, which is reflected in the company's 9% growth this quarter, I don't believe that aside from EMC, there is another company that is better positioned to capitalize on the expected surge in Big Data spending over the next two years.

I've said this before - analysts seem to want to concede the storage market to EMC. Given EMC's lead and the company's continued investments to produce growth, I don't have a problem with that. But I nonetheless believe that this competition is far from decided - It's still up for grabs. You can disagree if you like. But even if NetApp were to battle it out for second place for a few more years, you have to consider that these same experts are also projecting a 200% surge in the Big Data industry during that span. Suddenly, being second place in a growing market is not so bad now, is it?

Don't confuse my "second-place logic" for complacency, though. NetApp's management has much bigger ambitions. And the company's strength in its branded business, including the ONTAP product that enables scalable data management and operational consistency across private, public and hybrid clouds, is going to have a say in the direction that this industry takes.

And I haven't even said anything about NetApp's strength in Fabric-Attached Storage and also the company's E-series line of products, many of which highlight NetApp's appeal to the enterprise. So discount this company at your own peril. I believe astute investors can still do well here, given the recent slip in the share price. On a long-term basis, I believe NetApp's fair market value is still north of $50 on the basis of continued margin expansion and free-cash-flow growth.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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