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Netapp (NTAP) Q3 Revenue Growth Guidance Upside Seen

 November 15, 2012 11:11 AM

(By Balachander) NetApp Inc. (NASDAQ: NTAP) shares were reiterated with an "outperform" rating and with a price target of $40 by FBN Securities analyst Shebly Seyrafi, who sees upside to the company's third-quarter revenue growth guidance.

The company beat consensus expectations and guided above expectations for FQ3/Jan, Seyrafi noted.

"With the new 3250/3220 mid-range cycle just beginning, we see upside to the company's 1 percent to 7 percent quarter-over-quarter revenue growth guidance for  fiscal Q3.  The strong quarter-end (after a weak start) also bodes well," the analyst said.

NetApp earned $109.6 million, or $0.30 per share, for the second quarter, down from $165.6 million, or $0.44 per share, last year. Adjusted earnings per share (EPS) fell to $0.51 from $0.63. Revenues increased 2.3 percent to $1.541 billion.

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For the third quarter, the company expects adjusted EPS of $0.53 to $0.58 and revenue of $1.575 billion to $1.675 billion.

Bears have been pointing to a declining product GM as before FQ2 the NG product GM declined from 57 percent in FQ1 2012 to 51 percent the prior quarter (FQ1 2013), Seyrafi said.  However, product GM rebounded to 53.6 percent as the company sold more highly configured systems, the analyst added.

Seyrafi said investors were concerned about possibly declining product GMs and about Europe weakening, but product GM grew by 2pp Q/Q and is expected to remain at the current level or higher, while Europe actually accelerated to grow at 7 percent at CC.

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With $12/share of net cash, shares are trading at a P/E ex-cash of only 6.1x.

The stock, which has been trading in the 52-week range of $26.26 to $46.80, jumped 10.65 percent to trade at $30.01 on Thursday.

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