Can NetApp Earnings Continue The Run? (NTAP, DDUP, EMC)

NetApp, Inc. (NASDAQ: NTAP) is set to report earnings after the close of trading on Wednesday.  What will be interesting to see is if the company can maintain its old history of growth despite losing the Data Domain, Inc. (NASDAQ: DDUP) bidding war to EMC Corp. (NYSE: EMC).  Thomson Reuters has estimates pegged at $0.20 EPS and $828.3 million in revenues.

Because estimates had been lowered and expectations were crushed in the Q1 period, the company did handily beat earnings estimates.  But the Wednesday expectations compare to year ago results of $0.22 EPS on $868.77 million in revenue.  If the company gives guidance, the estimates for the coming quarter are $0.30 EPS on more than $862.2 million in revenues.

Data Domain was supposed to be the next growth engine, or so was the thought of Wall Street.  If NetApp can beat estimates again then it will still have organic growth.  Its trailing P/E level is a huge number on the surface, but that is not the case for ahead.  Its April 2010 forward estimate is $1.21 EPS so it trades at close to 19-times forward earnings and it trades at about 2.2-times forward revenues.

The most recent short interest is from the end of July and that is looking to be more than 23.28 million shares.

NetApp’s chart has actually done very well up until the last two days when it pulled back substantially.  It rose from $18 in early July to as high as $24 last week before coming back down.  The 50-day moving average is much lower at $21.03, but that will be at least a bit higher tomorrow when the chart looks at that figure.

The value of the options may change tomorrow, but the actual pricing of an anticipated move currently looks to be only about $1.00 in either direction.  And with shares at $22.70, the average analyst price target is between $23 and $24 per share.

There is one last notion to consider here.  NetApp is becoming a GARP stock… growth at a reasonable price.  It is also now sitting on a mountain of cash and short-term and long-term investments north of $2.75 billion.  Based on how well respected this company is by many of our technology contacts, if this share price goes back down and if the economy continues to normalize then NetApp might find itself as prey rather than as hunter.

JON C. OGG
AUGUST 18, 2009