NetApp, Inc. (NASDAQ: NTAP) has to be one of the few remaining tech stocks out there that hasn’t yet reclaimed its highs from the Dot Com bubble. Bill Clinton was still in the White House when NetApp shares last set a record, and while it may be some time before that’s topped, there’s a ton of opportunity opening up.
The data stock has been rallying since the start of the year, and while it wasn’t exactly knocking anyone’s socks off, its shares had gained about 30% coming into this week. For context, the benchmark S&P 500 index was up about 20% in the same timeframe, so NetApp was just about managing to outperform the market.
Heading into the last month of the year, however, that’s all changed. The San Jose-based company released their Q2 earnings earlier this week, which caught analysts napping in the best possible way. While still down year on year, topline revenue comfortably beat expectations for a much deeper contracting, while the company’s earnings per share came in 13% higher than the consensus.
Bullish outlook
Delivering a beat on the headline numbers is always a good way to start a report, particularly for stocks like NetApp, which tend to trade with a bit more lethargy than their more well-known peers. But the report only got better from there, with the company’s forward revenue and earnings guidance also smashing expectations. Being able to deliver an upside surprise here is really the kind of thing Wall Street wants to see, as it means a stock has almost certainly been mispriced and is undervalued, and so a major recalculation is required. When it’s a surprise to the upside, that means gains and big ones.
Having started the week with a 30% gain so far this year, NetApp shares look set to close out the week with a 50% gain for the year to date. They gapped up 10% on Wednesday’s open as investors rushed to get in on the action, and those gains continued all through yesterday’s session, too. Having traded mostly sideways since July, NetApp stock is now up 16% in just two days and coming within touching distance of last year’s high.
It needs about another 5% push to hit it, and given the volume on the bid in yesterday’s session, it’s not hard to see that being delivered in the very near future. This would put NetApp shares just under the $100 mark, a level they haven’t traded at since they imploded back in November 2000.
Getting involved
It’s an interesting turn of events, given it was only two weeks ago that Bank of America was urging caution on the stock. Ahead of NetApp’s earnings release, the team at BoA took a bearish stance on the coming quarters and said they expected some medium-term weakness. This was based on broader industry terms, namely around corporate spending on data storage software, which they said has turned “cautious.”
However, with a report like Tuesday’s firmly putting paid to any concerns about a protracted slowdown, it looks like the Bank of America team has gotten this one wrong. On the back of the company’s more bullish-than-expected outlook, the team at TD Cowen had no qualms reiterating their Outperform rating on the stock and boosting their price target. They upped it to a street high of $100, further underlining the strength in the stock and its capacity for further gains in the coming weeks.
For those of us on the sidelines, it’s a good time to be weighing up a position. Sure, the stock has popped hard this week, and it might feel like you’re chasing it, but really, what’s happening is that it’s going through a fundamental re-pricing exercise. The more negative scenarios that might have been previously feared have not come to pass, and shares are on the verge of breaking through their highest level in more than twenty years. NetApp shares have both the fundamentals and technicals supporting them, and there’s every reason to think they’ll rally all the way into 2024.
