NetApp and the Death of Growth (NTAP)

NetApp, Inc. (NASDAQ: NTAP) is now trading at levels not seen since the recession took it down with just about everything else. Earlier in May came a warning from Goldman Sachs about a fiscal-cliff at the end of the year impacting NetApp and other stocks.  It is coming home to roost if you see how bad the reaction is after an earnings warning.

For its fourth quarter ended in April, NetApp reported a 19% revenue growth to about $1.7 billion with earnings coming in at $0.66 EPS versus $0.63 estimates. The problem is with first quarter guidance, where NetApp now see revenue down about 12% to 18% sequentially to $1.4 billion to $1.5 billion versus estimates of just over $1.6 billion; that revenue is down 4% to up 3% from a year earlier.  NetApp also sees earnings of $0.34 to $0.39 EPS versus a consensus of $0.59 EPS.

Unfortunately, this translates to death of growth and this company has grown and grown in the past.  Here is how three analysts have chimed in so far today with more calls likely:

• Cut to Hold at Brean Murray;
• Cut to Sector Perform at RBC;
• Cut to Hold at Stern Agee.

The death of growth is never a good thing for companies which used to be high-flyers.  Shares are now down about 17% at $27.20 against a prior 52-week range of $31.94 to $56.49.  At least this is better than things were last night when shares were down as much as 20% in the after-hours session.  Nothing to celebrate here…

JON C. OGG