Foolish Forecast: NetApp Deserves Better

NetApp (Nasdaq: NTAP  ) , the artist formerly known as Network Appliance, is set to release fourth-quarter and full-year results on Wednesday night. How is the specialist in corporate data management holding up in these fiscally frugal times? We shall see.

What Fools say:
Here's how NetApp's CAPS rating stacks up against some of its peers and competitors:

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating

Hewlett-Packard (NYSE:HPQ)

$114.5

15.9

****

EMC (NYSE:EMC)

$35.5

22.9

*****

NetApp

$9.0

31.2

***

Brocade Communications Systems (NASDAQ:BRCD)

$2.9

49.2

***

STEC (NASDAQ:STEC)

$0.7

125.9

***

Data from Motley Fool CAPS, May 20.

In our Motley Fool CAPS community, the bullish arguments for NetApp focus on the high quality of and growing demand for its storage products. Bears like CAPS player Geo113 see a business model with a narrow focus that exposes the company to sudden downturns in business spending.

What management does:
NetApp's management is keeping a firm grip on cash flow margins, on top of impressive sales growth. Under those circumstances, I'm inclined to forgive some slippage in net margins. Maybe it's just a clever tax-reduction strategy.

Margins

10/2006

1/2007

4/2007

7/2007

10/2007

1/2008

Gross

60.5%

60.6%

60.8%

60.9%

60.8%

60.8%

Operating

12.4%

11.1%

9.8%

8.5%

8.4%

9.0%

Net

11.5%

10.3%

10.6%

9.7%

9.1%

9.8%

FCF/
Revenue

23.7%

26.0%

24.9%

25.2%

24.2%

23.6%

Growth (YOY) 

10/2006

1/2007

4/2007

7/2007

10/2007

1/2008

Revenue

34.1%

35.4%

35.7%

28.3%

25.0%

21.7%

Earnings

9.0%

(1.2%)

11.7%

6.3%

(1.1%)

15.8%

Data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
While it's true that NetApp has a sharply defined product catalog and a tightly focused customer base with heavy exposure to the troubled financial-services sector, the same could be said of obvious winners like Cisco Systems (Nasdaq: CSCO  ) . It's just that the scale is different.

Digital video is starting to grow up, ensuring that great storage servers will be in high demand for the next few years. As you can tell from the growth trends we looked at 10 seconds ago, this company can keep the order volume up even in a troubled economy.

Despite this resilience, a skeptical Wall Street has dropped the stock's value by 31% over the last year. Expect a good report that will turn some heads, right here.

Further Foolery:


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