NetApp Up 45% Year to Date: Will the Stock Sustain Momentum in 2025?

NetApp’s NTAP shares have been performing well on the trading front, with a gain of 44.8% year to date compared with the Zacks Computer and Technology sector and S&P 500 composite’s growth of 33.1% and 28.2%, respectively. However, NTAP’s YTD gains are marginally below the sub-industry’s growth of 46.5%.YTD Price PerformanceImage Source: Zacks Investment ResearchNetApp provides enterprise storage, as well as data management software and hardware products and services.Closing at $127.60 as of yesterday’s trading session, NTAP stock is currently trading 5.8% below its 52-week high of $135.45 attained on Nov. 22, 2024. With the pullback from 52-week high and supportive technical indicators (stock trades above 50 and 100-day averages), along with momentum in business, is NTAP an attractive investment opportunity? Let’s dig deeper to find out.Strengthening Flash Portfolio Demand Aids NTAPNetApp is witnessing higher demand from customers for its portfolio of modern all-flash arrays, especially the C-series capacity flash and ASA block-optimized flash. The new all-flash A-series is also picking up momentum. These enterprise storage products will allow users to boost workloads including traditional enterprise applications and Gen AI. The company expects the new AFF A-series, along with its C-series and ASA products, to capture further share in the all-flash market. Image Source: Zacks Investment ResearchIn the fiscal second quarter, the company’s All-Flash Array Business’ annualized net revenue run rate was $3.8 billion, up 19% year over year. Total billings rose 9% year over year to $1.59 billion. Also, Keystone’s storage-as-a-service offering has been gaining significant traction, with revenues increasing more than 55% year over year in the fiscal second quarter. Unbilled RPO was $330 million, up 11% quarter over quarter. Unbilled RPO is a key indicator of Keystone's growth.NTAP’s Improving Public Cloud BusinessSolid momentum in hyperscaler first-party and marketplace storage services has been driving revenues from the Public Cloud. The Public Cloud segment comprises revenues from products delivered as a service and related supports. The portfolio contains cloud automation and optimization services, as well as storage and cloud infrastructure monitoring services. Public Cloud segment’s revenues improved 9% to $168 million, driven by 43% increases in first-party and marketplace cloud storage services. Driven by strength in the cloud storage business, NetApp now expects cloud revenues to return to double-digit growth year over year from the current quarter.AI Momentum Bodes Well for NTAPApart from the demand for flash and block, increasing demand for NetApp’s cloud storage and AI solutions bodes well. In the fiscal second quarter, the company won more than 100 AI and data lake modernization deals. The company is also working on the development of GenAI cloud and on-premises solutions in collaboration with industry behemoths. NetApp expanded its partnership with Google Cloud to provide the foundational data storage for the Google Distributed Cloud and make AI-ready infrastructure available to the public sector and other highly regulated industries. NetApp's intelligent data infrastructure, bolstered by ONTAP and StorageGRID solutions, empowers its customers to efficiently scale workloads and harness AI while ensuring security and regulatory compliance. Google Distributed Cloud will also use these capabilities to enhance its services, including databases, AI and analytics.NTAP Raises OutlookDriven by strong year-to-date performance and strength in flash, block, cloud and AI, NetApp now expects full-year revenues in the range of $6.54-$6.74 billion, up 6% year over year at the mid-point. Earlier, it anticipated sales in the band of $6.48-$6.68 billion. The company now forecasts non-GAAP earnings per share for fiscal 2025 to be between $7.20 and $7.40, up 13% year over year at the mid-point. Earlier, it expected non-GAAP earnings between $7.00 and $7.20 per share .In the long term, it expects mid-to-upper single-digit revenue growth and double-digit bottom-line growth on average through fiscal 2027.  For fiscal 2025, NetApp continues to expect non-GAAP gross margin in the range of 71-72%. Non-GAAP operating margin is anticipated in the band of 28-28.5% compared with 27-28%.NTAP’s Healthy Capital Allocation StrategyNetApp’s cash, cash equivalents and investments stood at $2.22 billion while long-term debt was $1.244 billion as of Oct. 25, 2024. For the fiscal second quarter, the company generated net cash from operations of $105 million and free cash flow of $60 million. Net cash balance provides the required flexibility to pursue any growth strategy, whether through acquisitions or otherwise. A strong balance sheet helps NetApp continue its shareholder-friendly initiatives of dividend payouts. The company returned $406 million to its shareholders as dividend payouts and share repurchases in the fiscal second quarter. The company has $800 million worth of shares remaining under its existing authorization. NetApp also announced a dividend of 52 cents per share, payable on Jan. 22, 2025, to its shareholders of record as of the close of business on Jan. 3.Northbound Estimates for NTAPIn the past 60 days, analysts have increased their earnings estimates for the current quarter and the next quarter by 2.7% and 2.1% to $1.88 and $1.95 per share, respectively. The same for the current year has been revised upward by 2.6% to $7.24 per share.Image Source: Zacks Investment ResearchNTAP Faces Certain HeadwindsFree cash flow is expected to be slightly lower year over year in fiscal 2025, driven by the SSD-related cash outflows. Also, NTAP anticipates a slight decline in product gross margins in the second half of fiscal 2025, though margins are still expected to be in the high 50% range. This is due to increased costs associated with SSD payments, which have been strategically locked in at higher prices to alleviate supply chain risks.A weak IT spending environment and stiff competition from Pure Storage PSTG, Western Digital Corporation WDC and Teradata Corporation TDC in the flash and cloud markets remain additional headwinds.NTAP’s Expensive ValuationNTAP stock is trading at a premium with a forward 12-month Price/Earnings of 16.86X compared with the industry’s 13.51X.Image Source: Zacks Investment ResearchConclusion: Hold NTAP for NowStrength in all-flash storage and cloud markets bodes well for NTAP, along with momentum in the AI space. However, several factors could exert downward pressure on its stock price in the near term. These include potential margin compression and lower free cash flow due to SSD outflows. A weak IT spending environment and stiff competition remain additional headwinds.NTAP currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report NetApp, Inc. (NTAP): Free Stock Analysis Report Western Digital Corporation (WDC): Free Stock Analysis Report Teradata Corporation (TDC): Free Stock Analysis Report Pure Storage, Inc. (PSTG): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks