How Will NetApp (NTAP) Stock Be Affected By IBM (IBM) Decision?

NEW YORK (TheStreet) -- International Business Machines Corp. (IBM) announced on Friday it will stop selling storage technology from NetApp Inc. (NTAP) in an effort to get customers to purchase its own products, Bloomberg reports.

On May 27, IBM will officially shutdown production on NetApp's new N series systems as it looks to increase its own declining hardware sales.

NetApp gets 2% of its revenue from IBM, Bloomberg said.

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Shares of NetApp are up 0.03% to $35.77 in after-hours trading today.

TheStreet Ratings team rates NETAPP INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate NETAPP INC (NTAP) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow."

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

  • 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.
  • Net operating cash flow has declined marginally to $331.80 million or 9.12% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • NTAP has underperformed the S&P 500 Index, declining 9.39% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
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