Will This Initiation Of Coverage Hurt NetApp (NTAP) Today?

NEW YORK (TheStreet) -- NetApp (NTAP) had coverage initiated on its shares with a "hold" rating at Deutsche Bank  (DB) on Thursday.

The firm set a price target of $36 on the company's shares.

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NetApp is up 0.1% to $37.70 in early market trading on Thursday.

Deutsche Bank points to sector changes in the IT field as the reason for the rating and blame the emergence of cloud computing competitors as a reason for stagnating sales.

"NetApp has historically seen high growth, but sales have stalled in the past two years... We also believe NetApp's medium-sized businesses are exploring putting more workloads in the Cloud. Offsetting weaker sales, is the company's innovative Clustered Data ONTAP operating systems, which we believe is an attractive platform for cloud providers." Deutsche Bank said.

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Separately, TheStreet Ratings team rates NETAPP INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate NETAPP INC (NTAP) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, notable return on equity and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Computers & Peripherals industry average. The net income increased by 21.5% when compared to the same quarter one year prior, going from $158.10 million to $192.10 million.
  • Although NTAP's debt-to-equity ratio of 0.25 is very low, it is currently higher than that of the industry average. To add to this, NTAP has a quick ratio of 2.33, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for NETAPP INC is rather high; currently it is at 67.45%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, NTAP's net profit margin of 11.93% significantly trails the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, NETAPP INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • NETAPP INC has improved earnings per share by 27.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NETAPP INC reported lower earnings of $1.37 versus $1.57 in the prior year. This year, the market expects an improvement in earnings ($2.74 versus $1.37).
  • You can view the full analysis from the report here: NTAP Ratings Report
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