NEW YORK (TheStreet) -- Shares of NetApp (NTAP) sharply declined 12.26% to $31 in afternoon trading after the Sunnyvale, CA-based provider of storage and data management software, systems and services reported fourth quarter 2015 earnings after the close yesterday, leading several analyst firms to downgrade their valuations of the company.
NetApp's net revenue for the fourth quarter was $1.54 billion. The company earned non-GAAP net income of $202 million, or $0.65 per share, compared to non-GAAP net income of $284 million, or $0.84 per share, for the comparable period of the prior year. The net revenue reported was below Cantor Fitzgerald's projection of $1.58 billion for the quarter.
For fiscal year 2015, NetApp reported $6,123 billion in net revenue, posting non-GAAP net income of $865 million, or $2.70 per share for the year. These numbers fell short of Cantor Fitzgerald's yearly net revenue projection of $6,163.2 billion and yearly non-GAAP projected earnings of $2.77 per share, leading them to downgrade the company to "hold" from "buy," and a decreased price target to $35 from $43.
Needham & Co. and Summit Research followed suit, each downgrading the stock to "hold" from "buy," following a statement from NetApp citing that worldwide headcount we be reduced by approximately 500 employees. The company expects to incur aggregate charges of approximately $25 million - $35 million for employee terminations and other costs associated with the realignment, according to the statement.
"Not only is the storage market undergoing secular challenges but NetApp is experiencing its own execution issues with the transition of customers to Clustered ONTAP," said Cantor analyst Brian White."We believe the combination of secular challenges and execution/transition issues leaves NetApp vulnerable to customer retention issues and market share losses in a very competitive storage market."
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 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