The intelligent data infrastructure company NetApp, Inc. (NTAP) is scheduled to release its fiscal 2024 second quarter financial results on November 28. Wall Street expects the company to report quarterly earnings of $1.39 per share. Its revenue for the same period is expected to be $1.53 billion.

Before examining NTAP's fundamentals, let's look at the recent developments that could influence the company's future performance.

On November 9, NTAP renewed its collaboration with Microsoft Corporation (MSFT), delivering innovations to Microsoft Azure users. The partnership integrates solutions for cloud storage with Azure NetApp Files (ANF), NetApp BlueXP, Cloud Volumes ONTAP, and now CloudOps solutions from Spot by NTAP.

The alliance could significantly benefit NTAP's growth by enabling the delivery of market-leading cloud storage and cloud infrastructure operations to its customers and partners. These offerings, unmatched in the industry, are expected to position NTAP uniquely in providing cutting-edge solutions.

Moreover, on November 7, NTAP unveiled NetApp StorageGRID for VMware Sovereign Cloud, offering a cost-effective solution for sovereign cloud customers. The NetApp plugin for VMware Cloud Director Object Storage Extension enables users to efficiently store, secure, and preserve unstructured data while complying with global data privacy and residency regulations.

Simultaneously, the company introduced the latest release of NetApp ONTAP Tools for VMware vSphere (OTV 10.0), aiming to streamline enterprise data management across multi-tenant vSphere environments.

Recognizing the increasing importance of data sovereignty for large organizations dealing with a growing volume of highly sensitive data, the integration of NetApp StorageGRID with VMware Sovereign Cloud stands as a significant achievement for NTAP, potentially revolutionizing how customers manage and maintain sovereign control over their unstructured data in the cloud.

Shares of NTAP have gained 18.3% over the past six months and 28.9% year-to-date to close the last trading session at $78.34.

Here are the financial aspects of NTAP that could influence its performance in the near term:

Solid Recent Financials

For the fiscal 2024 first quarter that ended July 28, 2023, NTAP's revenue from Services increased 4.5% year-over-year to $842 million. Its cash inflow from operating activities grew 61.2% from the year-ago value to $453 million. Also, the company's free cash flow rose 93.5% from the prior year's quarter to $418 million.

Furthermore, as of July 28, 2023, NTAP's cash, cash equivalents and investments amounted to $2.98 billion, while total assets came in at $9.27 billion.

Sound Historical Growth

Over the past three years, NTAP's revenue and EBITDA increased at a CAGR of 4.2% and 5.5%, respectively. Its net income and EPS grew at a CAGR of 15.1% and 16.6%, respectively. In addition, the company's total assets and levered free cash flow rose at respective CAGRs of 3.3% and 17.2% over the same time frame.

Positive Analyst Estimates

The consensus revenue estimate of $1.55 billion for the fiscal 2024 third quarter ending January 2024 reflects a 1.9% year-over-year improvement. Likewise, the consensus EPS estimate of $1.53 for the next quarter exhibits an 11.5% rise from the previous year. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters.

Discounted Valuation

In terms of forward non-GAAP P/E, NTAP is trading at 13.67x, 40.4% lower than the industry average of 22.94x. Its forward EV/EBITDA of 9.12x is 37.7% lower than the 14.63x industry average. Moreover, NTAP's forward Price/Book of 15.05x is 293.1% lower than the 3.83x industry average.

Robust Profitability

NTAP's trailing-12-month gross profit margin of 67.06x is 37.8% higher than the industry average of 48.67x. Moreover, the stock's trailing-12-month EBITDA margin of 21.01% is 131.8% higher than the 9.07% industry average.

Furthermore, its trailing-12-month net income margin and levered FCF margin of 19.49% and 20.60% compares to the industry averages of 1.77% and 8.20%, respectively.

POWR Ratings Show Robust Prospects

NTAP's positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NTAP has an A grade for Quality, justified by its higher-than-industry profitability. In addition, the stock has a C grade for Stability, consistent with its 24-month beta of 0.97.

NTAP is ranked #16 in the 37-stock B-rated Technology - Hardware industry. Click here to access NTAP's Growth, Value, Momentum, and Sentiment ratings.

Bottom Line

NTAP's renewed collaborations and innovative solutions are poised to enhance its competitive advantage, broadening its customer appeal. The strategic emphasis on cloud storage and operations and advancements for sovereign cloud users could position NTAP as an industry leader, resulting in heightened demand and revenue growth.

Given the promising growth prospects and profitability, loading up on shares of NTAP before its upcoming earnings release could be prudent.

How Does NetApp, Inc. (NTAP) Stack Up Against Its Peers?

While NTAP has an overall grade of B, equating to a Buy rating, you may also check out these other A-rated stocks within the Technology - Hardware industry: HP Inc. (HPQ), Vtech Holdings Limited (VTKLY) and Daktronics, Inc. (DAKT). For exploring more A-rated Technology - Hardware stocks, click here.

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NTAP shares were trading at $78.45 per share on Monday morning, up $0.11 (+0.14%). Year-to-date, NTAP has gained 34.50%, versus a 20.22% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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