NEW YORK (TheStreet) -- Shares of NetApp (NTAP) are plunging 11.69% to $31.20 in Thursday's pre-market trading after JPMorgan downgraded the California-based computer storage and data management company to "underweight" from "neutral."
JPMorgan analysts said the downgrade was due to fourth quarter revenues that were 10.9% below their estimates. They added that according to the company, this was due to a tough product transition for customers.
NetApp reported weak fourth quarter results yesterday. It reported revenue of $1.54 billion, or 65 cents per share, compared to revenue of $1.65 billion,or 84 cents per share in the same quarter last year. On a year-over-year basis, the quarterly revenue fell 6.6%.
The company also missed Thomson Reuters consensus estimate of 72 cents per share for the fourth quarter.
"We are not pleased with our results in the fourth quarter," CEO Tom Georgens said.
Referring to the new product transition, he added, "After a thorough analysis of these challenges, it is clear that we underestimated the disruption that the transition to clustered ONTAP has had an our direct and indirect pipeline. The disruption has been most acutely felt in our Americas commercial geography, due to the heavy concentration of large enterprise customers in the U.S."
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 several positive factors, 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 growth in earnings per share, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- NETAPP INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NETAPP INC increased its bottom line by earning $1.85 versus $1.37 in the prior year. This year, the market expects an improvement in earnings ($2.77 versus $1.85).
- The gross profit margin for NETAPP INC is rather high; currently it is at 68.13%. 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 11.39% significantly trails the industry average.
- Despite currently having a low debt-to-equity ratio of 0.43, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that NTAP's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.38 is high and demonstrates strong liquidity.
- 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.
- The revenue fell significantly faster than the industry average of 33.3%. Since the same quarter one year prior, revenues slightly dropped by 3.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: NTAP Ratings Report