Can NetApp Earnings Grow Even Faster?

NetApp (NASDAQ: NTAP  ) will release its quarterly report tomorrow, and the stock has bounced back sharply from last year's slump. But with such high expectations from investors, can NetApp earnings grow fast enough to satisfy shareholders and keep the stock rising?

The trend toward big data has greatly increased demand for the ability to store important information, and NetApp specializes in the network-storage solutions that address that demand. Yet with rising competition in the industry, NetApp has to execute well in order to fend off its rivals. Let's take an early look at what's been happening with NetApp over the past quarter and what we're likely to see in its report.

Stats on NetApp

Analyst EPS Estimate

$0.49

Change From Year-Ago EPS

17%

Revenue Estimate

$1.53 billion

Change From Year-Ago Revenue

5.9%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How will NetApp earnings fare this quarter?
Analysts have had decidedly mixed views on NetApp earnings prospects recently. They've cut their July quarter expectations by $0.04 per share, but they've boosted their full-year fiscal 2014 projections by more than four times that amount. The stock has sided with the long-term bulls, rising almost 20% since early May.

NetApp started off the quarter on a mixed note, with its April-quarter earnings beating expectations but with overall revenue growing less than 1%, disappointing some analysts. Despite strength in its flash-based storage equipment business, NetApp said it would lay off 900 employees as part of a global workforce reduction.

But NetApp nevertheless has a huge growth opportunity. Last month, the company got an analyst upgrade from a major Wall Street firm, citing strong demand for its data-storage systems in light of ongoing initiatives emphasizing the collection of ever-increasing amounts of data. NetApp also benefits from a key partnership with Cisco Systems (NASDAQ: CSCO  ) , with joint announcements this quarter including the NetApp certification of a new Cisco MDS storage-switch product as well as an expansion of its FlexPod integrated system for pulling storage, networks, applications, and analytics into a single unit for maximum efficiency.

NetApp has taken some important steps toward bolstering its attractiveness to investors. In late May, the company started paying a dividend, with a modest but still significant yield of about 1.4%. It also added another $1.6 billion in stock buyback authorizations, helping to push share prices up further.

One key question for NetApp is whether it can top its rivals' offerings. Fusion-io's (NYSE: FIO  ) earnings miss last week came from sluggish demand, with that company expecting to see tough times going forward as well. Brocade Communications (NASDAQ: BRCD  ) has had trouble in the storage-area network space, forcing it to emphasize its Ethernet business segment over its core storage offerings.

In the NetApp earnings report, look to see how well the company's cost-cutting measures are adding to overall efficiency gains. In addition, as its proprietary ONTAP system continues to expand in scope, watch for how well it does compared to its partnership-based offerings with Cisco and other partners. Which business does better could hold the answer to where NetApp can find future growth.

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