FBN Securities’s Shebly Seyrafi this morning raised his rating on shares of NetApp (NTAP) to Outperform from Sector Perform, with a price target of $45, writing that the company’s “indirect” sales channel is increasing sales far faster than its direct sales business, and should increasingly drive overall revenue results.
A sum-of-the-parts valuation of the stock would suggest it could be worth as much as $58, but Seyrafi’s sticking with the lower target given “near-term risks” such as Europe’s economic crisis and the disruption of the hard disk drive industry as a result of flooding in Thailand.
NTAP shares have been under pressure since the company last Wednesday reported fiscal Q2 revenue below analysts’ estimates. The stock is down 17% since Wednesday.
Despite the deceleration in revenue growth to 6% in the quarter, Seyrafi thinks the company’s “core” revenue, excluding its acquisition of startup Engenio, can return to a 14% rate in the fiscal year ending in April 2013:
While it is true that NTAP�s direct sales have lost share to the competition (EMC (EMC) and HDS [Hitachi Data Systems]) over the past two quarters, its indirect channel business remains robust. As shown graphically in this report, NTAP�s indirect business has grown at a 4-yr. CAGR of 23% (and 34% Y/Y in the latest quarter), while its direct business has grown at a 4-yr. CAGR of 4% (and – 14% Y/Y in the latest quarter). Our key point is that with direct now accounting for only 20% of revenue (vs. 28% the year before), NTAP�s overall business will be more and more determined by its indirect business, for which we are still projecting a robust 18% growth in F2013/Apr.
NetApp stock today is down $1.01, or almost 3%, at $33.74.
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