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Will Flash-Based Solutions Aid NetApp’s (NTAP) Q3 Earnings?

Zacks

NetApp Inc. NTAP is set to report fiscal third-quarter 2018 results on Feb 14. Notably, the company’s earnings have outpaced the Zacks Consensus Estimate in the four trailing quarters, with an average positive surprise of 11.5%.

Last quarter, the company delivered non-GAAP earnings of 81 cents per share, beating the Zacks Consensus Estimate of 69 cents per share. The figure surged 35% on a year-over-year basis and was also within the guided range.

Revenues of $1.42 billion increased 6% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $1.38 billion. The figure met management’s expectation. The impressive second-quarter results were driven by the company’s successful ongoing transition from underperforming segments to growth oriented sectors like all-flash arrays and hybrid cloud along with Data Fabric strategies.

Guidance & Estimates


For third-quarter fiscal 2018, NetApp expects non-GAAP earnings per share in the range of 86-94 cents. The Zacks Consensus Estimate for the current quarter is pegged at 90 cents.

Net revenues are anticipated to be in the range of $1.43-$1.58 billion, which at the mid-point implies 6.8% growth from the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.49 billion.

Management remains hopeful that the performance of the sales team, its differentiated product portfolio and strong distribution channels will keep demand and adoption of its products strong going ahead.

NetApp stock has gained 41.9% year over year, outperforming the 10.9% rally of the industry it belongs to.

Factors to Impact Q3 Results

NetApp is tapping growth areas of the market with its strategic solutions. Revenues from strategic solutions increased 23% on a year-over-year basis in the last reported quarter. This segment comprises around 69% of the company’s product revenues, displaying 14% year over year growth.

The company is positive about catering to the exponential rate of data growth with its cloud-integrated all-flash solutions that fit well with hybrid cloud infrastructure. During the second quarter, the company’s all-flash array business surged 60% on a year-over-year basis. Its annualized net revenue run rate was $1.7 billion.

The company’s expertise in the flash array market is aiding its popularity in storage area network (SAN) and converged infrastructure markets. The company’s launch of hyper-converged infrastructure is also anticipated to be a positive for the top line in the to-be-reported quarter.

Moreover, NetApp’s extended partnership with Microsoft MSFT in the second quarter for the development of the industry’s first cloud-based enterprise Network File System (NFS) to be delivered via Azure is anticipated to bolster the top line.

Notably, the Zacks Consensus Estimate for Hardware Maintenance and Other Services revenues is pegged at $374 million. Product revenues are estimated to be $879 million and Software Subscription revenues are anticipated to be around $243 million in third-quarter 2018.

What Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NetAppcarries a Zacks Rank #3 and its Earnings ESP is +0.78%.

Stocks With Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

NVIDIA Corporation NVDA has an Earnings ESP of +6.87% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agilent Technologies, Inc. A, with an Earnings ESP of +1.21% and a Zacks Rank of 3.

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