On Tuesday, Evercore ISI maintained an In Line rating and a $120.00 price target on NetApp (NASDAQ:NTAP), following the company's analyst day presentation. NetApp outlined its growth strategy and long-term financial model, emphasizing its unified platform approach and its position to lead in the data management industry. The company's Total Addressable Market (TAM) is projected to grow at approximately 7% compound annual growth rate (CAGR) from the fiscal year 2025 to 2027, reaching over $100 billion.
During the analyst event, NetApp highlighted its four pillars of growth and updated its long-term financial outlook. The company expects mid-to-high single-digit revenue growth and EBIT margins of around 30% or more for FY25-27, which should drive double-digit growth in earnings per share (EPS). Looking beyond FY27, NetApp aims to achieve the "rule of 40," a metric used to evaluate the performance of software companies by adding their growth rate to their profit margin.
NetApp identified several key areas for expansion, including flash storage, which is anticipated to be a roughly $40 billion market by FY27. The company has diversified its offerings across various performance and cost categories. Additionally, block storage presents a new opportunity for NetApp, with a projected $49 billion market in FY27. Cloud storage, expected to be a $27 billion market, is another growth vector, with NetApp providing seamless operations across hybrid and multi-cloud environments through partnerships with GCP, Azure, and AWS.
Artificial Intelligence (AI) represents a significant market opportunity, expected to reach about $14 billion, driven predominantly by unstructured data. NetApp, with a strong presence in the unstructured data segment, believes this will be a key area of differentiation. Furthermore, NetApp plans to continue its commitment to returning 100% of its free cash flow (FCF) to shareholders through dividends and share repurchases.
In other recent news, NetApp has witnessed significant developments. The company's fourth-quarter results for fiscal year 2024 surpassed expectations, mainly due to strong demand for its All-Flash Arrays and improved margins, leading to healthy revenue growth projections of around 4.5% year-over-year for FY25E.
NetApp has appointed Mike Sakalas as its Vice President of U.S. Enterprise Sales, aiming to enhance strategic customer engagements and elevate the customer experience in the U.S. market. Analysts from J.P. Morgan Securities LLC, BCI, US, and Citi Research maintain a neutral rating, while Argus and TD (TSX:TD) Cowen have shown optimism by raising their price targets and maintaining a Buy rating for NetApp.
NetApp's public cloud revenues are expected to return to healthy growth in FY25E after overcoming subscription-related headwinds. The company's all-flash array portfolio saw a 17% increase in revenue, reaching an annualized rate of $3.6 billion. NetApp's Storage-as-a-Service solution, Keystone, doubled its total contract value to nearly $150 million. The company anticipates total revenue for fiscal year 2025 to be between $6.45 and $6.65 billion, with an EPS range of $6.80 to $7.00. These are some of the recent developments in the company.
InvestingPro Insights
As NetApp (NASDAQ:NTAP) continues to navigate its growth strategy, real-time data and insights from InvestingPro provide a deeper understanding of the company's financial health and market performance. With a robust market capitalization of $25.77 billion, NetApp is positioned as a significant player in the Technology Hardware, Storage & Peripherals industry. The company's Price/Earnings (P/E) ratio stands at a notable 26.42, reflecting investor expectations for future earnings growth. Additionally, NetApp's Price/Book ratio as of the last twelve months ending Q4 2024 is 22.5, which may indicate a premium valuation compared to industry peers.
InvestingPro Tips highlight that NetApp has been proactive in managing its capital, evidenced by an aggressive share buyback program and a high shareholder yield. Furthermore, the company has maintained dividend payments for 12 consecutive years, underscoring its commitment to rewarding shareholders. Analysts have taken a positive view on NetApp's earnings prospects, with eight analysts revising their earnings upwards for the upcoming period. For those interested in further analysis, InvestingPro offers additional tips on NetApp, which can be accessed through a subscription. Use coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 18 additional InvestingPro Tips that can help inform your investment decisions.
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