After dropping more than 30% in the last quarter 2018, NetApp, Inc. (NASDAQ:NTAP) saw its share price reverse course and has recovered nearly 40% of its losses so far. Can NetApp sustain its share price growth, or is it too late to get in on the action?
NetApp continues to grow revenues and expand business every quarter and the company’s earnings beat analysts’ expectations each of the past four quarters. Nearly half of analysis that are currently covering the stock (14 out of 29) have a “Buy” or “Strong Buy” recommendation. Additionally, the company’s current share price has nearly 17% room on the upside before it reaches the analysts’ current target price.
On February 13, 2019, NetApp reported financial results for the third quarter of fiscal-year 2019, which ended January 25, 2019.
The company reported a 2% year-over-year revenues increase from $1.54 billion in the third quarter of 2018 to $1.56 billion for the most recent period. The company’s primary product offering generated nearly two-thirds of total revenues — $967 million. Software Maintenance ($239 million) and Hardware Maintenance & Other Services ($357 million) business segments contributed the remaining third of total revenues.
On that revenue, NetApp generated total earnings of nearly $250 million, or $0.98 per diluted share. Additionally, adjusted earnings per share (EPS) of $1.20 were 4.3% higher than analysts’ expectations of $1.15, as well as 14.3% higher than the $1.05 EPS from the same period last year.
During the third quarter, NetApp returned $649 million to shareholders through its share repurchase program ($550 million) and cash dividend distributions ($99 million). The company will distribute the next round of dividends on April 25, 2019, to all shareholders of record before the April 5, ex-dividend date.
For the last quarter of the company’s fiscal-year 2019, NetApp expects revenues in the $1.59 billion to $1.69 billion range. Furthermore, earnings expectations are in the $1.06 to $1.12 per diluted share or $1.22 to $1.28 adjusted.
NetApp, Inc. (NASDAQ:NTAP)
Headquartered in Sunnyvale, California, and founded in 1992, NetApp, Inc. provides software, systems and services for data sharing and management, as well as private and public clouds. The firm offers its cloud data services through multiple platforms, such as ONTAP cloud storage data management, NetApp cloud sync data synchronization services, NetApp Software as a Service (SaaS) backup for Microsoft Office 365, NetApp cloud backup solutions and OnCommand management software. Additionally, NetApp also provides cloud Infrastructure solutions, including FlexPod — a portfolio of pre-validated designs and integration — NetApp advisor converged systems, NetApp HCI enterprise-scale hyper converged cloud infrastructure and NetApp StorageGRID Webscale object storage software. Furthermore, the company also offers flex array storage virtualization, backup management, business continuity and data compliance software, as well as storage operating systems. NetApp also has a strategic partnership with Lenovo to help customers modernize IT and enhance their digital transformation. The company is a component of Nasdaq 100 and the S&P 500 Index.
After reversing direction from a 15% decline in July 2017, the share continued its long-term ascent and entered the current 12-month period riding a strong uptrend. The share price advanced more than 40% before reaching its five-year high of $87.32 on September 4, 2018. In addition to being the highest price level in the past five years, the current 52-week high is at levels unseen since November 2000, when the share price was dropping fast from its all-time high created by the dot-com bubble.
However, following its peak at the beginning of September, the share price reversed direction end declined slowly for the remainder of 2018. After losing more than 37% of its value over the subsequent three months, the share price reached its 52-week low of $54.82 on December 24, 2018 and erased all its gains since February 2018.
Nevertheless, the overall markets reversed direction from its December 2018 correction and as the overall markets began recovering during the last week of the year, the NetApp share price followed. Since resuming its uptrend on Christmas Eve, the NetApp share price advanced to recover almost half of its fourth-quarter losses and closed on March 27, 2019, at $67.39. The March 27 closing price was still more than 23% below its recent peak from the beginning of September 2018.
However, the March 27 closing price was also nearly 10% higher than it was one year earlier, as well as 22.5% higher than its 52-week low from the end of December. Furthermore, the current share price is also nearly 80% higher than it was five years ago.
Despite the large drop in the last quarter of 2018, the share price recovered fully, generated one-year gains and combined with the NetApp’s dividend income distribution to deliver a total return on shareholder investment of 12.7% over the past 12 months. While total returns over longer time horizons tend to be higher for equities with a stable long-term asset appreciation, that is not the case for NetApp over the past five years.
NetApp investors nearly doubled their investment over the past five years with a 97% total return. However, the share price lost nearly half of its value during 2015, which made the three-year total return significantly higher. Over the past three years, shareholders enjoyed a total return on their investment of nearly 170%.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.