Network Appliance (NTAP)

[momentum74]

JPM 6th upgrade this morning very positive on NTAP 18-Nov-10 07:58 am · What to do with the stock? We recommend building or adding to positions in the shares of NetApp following yesterday’s pre-halt sell-off. NetApp remains one of our top picks, alongside Apple. NetApp’s F2Q11 performance affirmed its high-growth stature, and we expect the company to exhibit above-peer revenue growth as the enterprise reinvestment cycle continues to gather steam.

· October results top Consensus again. NetApp reported F2Q11 (October) revenue and non-GAAP EPS (ex. FAS123R) of $1.207 billion and $0.52, versus our Street high estimates of $1.215 billion and $0.51. The Street consensus had been at $1.193 billion and $0.49. Revenue and EPS beat consensus by 1% and 6%, respectively. Cash flow from operations was $364.7 million.

· Guidance should be good enough, despite EPS miss. NetApp guided F3Q11 (January) revenue and non-GAAP EPS (ex. FAS123R) to $1.24-1.29 billion and $0.48-0.50, versus our prior estimate of $1.284 billion and $0.53 and the Street consensus of $1.257 billion and $0.51. We think the guidance should be good enough, despite the EPS miss. We highlight the approximate ($0.02) hit to EPS related to a convert trigger, driving a higher than expected share count.

· Surprise EPS hit is a high-quality problem. EPS guidance for F3Q11 was impacted by a ($0.02) hit, due to share count dilution related to outstanding convertible notes and warrants. The dilution to EPS is a high quality problem to have, in our view, as it is the direct result of the increase in NetApp's stock price. Excluding the ($0.02) impact, adjusted F3Q11 guidance brackets the prior Street consensus. As such, we expect the pull back in NetApp shares to be temporal. Rating :
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