NetApp (NTAP) To Report Q1 Earnings: What's In The Cards?

NetApp Inc. (NASDAQ:NTAP) is set to report fiscal first-quarter 2018 results on Aug 16. Notably, the company’s earnings have beaten the Zacks Consensus Estimate in the four trailing quarters, with an average positive surprise of 23.5%.

Last quarter, the company delivered a positive earnings surprise of 5.88%. Non-GAAP earnings (excluding stock-based compensation) surged 56.4% from the year-ago quarter and almost 5% sequentially to 86 cents.

Revenues increased 7.3% from the year-ago quarter and 5.5% from the previous quarter to $1.48 billion, surpassing the Zacks Consensus Estimate of $1.44 billion.

The fiscal first-quarter 2018 guidance has been affected by seasonality. Management expects non-GAAP earnings to be in the range of 49–57 cents per share, which reflects 15% growth year over year at the midpoint. The unimpressive outlook has adversely impacted the share price momentum. NetApp stock has gained 19.4% year to date, underperforming the 21.4% rally of the industry it belongs to.

Factors to Consider

NetApp is now focused on expanding its total addressable market (TAM) by growing product portfolio and strengthening its dominant position in all-flash arrays and converged infrastructure markets. We believe that continuing penetration into Tier 1 SAN market will drive top-line growth.

Moreover, the company’s introduction of new hybrid cloud offerings such as NetApp HCI, an enterprise-scale hyper converged solution, is a positive for the company and may add to its customer base. Moreover, NetApp plans to expand its strategic partnership with Microsoft (NASDAQ:MSFT) for enhancement of hybrid cloud services. This is also anticipated to drive the top line growth.

We believe that the growing adoption of NetApp’s SolidFire (acquired in 2016) is a major tailwind for the company’s top-line growth. Further, the company is also focusing on expanding its international operations, which will further drive results.

However, tepid IT spending raises concerns about the company’s near-term performance. Intensifying competition from Western Digital (NASDAQ:WDC) and HP Inc. add to its woes.

Earnings Whispers

Our proven model does not conclusively show that NetApp will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 42 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: NetApp has a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

Broadcom Limited (NASDAQ:AVGO) with an Earnings ESP of +2.57% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International, Inc. (NYSE:CACI) with an Earnings ESP of +1.83% and a Zacks Rank #2.

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