IT Hardware Stocks

NetApp Inc Valuation – February 2019 $NTAP

Company Profile (excerpt from Reuters): NetApp, Inc. (NetApp), incorporated on November 1, 2001, provides software, systems and services to manage and store customer data. The Company enables enterprises, service providers, governmental organizations, and partners to envision, deploy and evolve their information technology (IT) environments. The Company offers a portfolio of products and services that satisfy a range of customer workloads across different data types and deployment models. Its data management and storage offerings help manage business productivity, performance and profitability, while providing investment protection and asset utilization. The Company’s FlexPod portfolio includes FlexPod Datacenter for core enterprise data centers and service providers, FlexPod Express for medium-sized businesses and branch offices, and FlexPod Select for data-intensive workloads. The portfolio is validated with hypervisors, operating systems, systems management tools, and cloud management platforms.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NTAP – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,979,647,494 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.65 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 39.82% Pass
6. Moderate PEmg Ratio PEmg < 20 31.33 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.92 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.53 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.02
MG Growth Estimate 3.14%
MG Value $29.84
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $29.28
MG Value based on 0% Growth $17.16
Market Implied Growth Rate 11.42%
Current Price $63.27
% of Intrinsic Value 212.06%

NetApp Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.67 in 2015 to an estimated $2.02 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.42% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into NetApp Inc. revealed the company was trading above its Graham Number of $26.89. The company pays a dividend of $0.8 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 31.33, which was above the industry average of 29.46. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.87.

NetApp Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.87
Graham Number $26.89
PEmg 31.33
Current Ratio 1.65
PB Ratio 10.92
Current Dividend $0.80
Dividend Yield 1.26%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $5,471,000,000
Total Current Liabilities $3,310,000,000
Long-Term Debt $1,144,000,000
Total Assets $8,551,000,000
Intangible Assets $1,811,000,000
Total Liabilities $7,021,000,000
Shares Outstanding (Diluted Average) 264,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.09
Apr2018 $0.28
Apr2017 $1.81
Apr2016 $0.77
Apr2015 $1.75
Apr2014 $1.83
Apr2013 $1.37
Apr2012 $1.58
Apr2011 $1.71
Apr2010 $1.13
Apr2009 $0.19
Apr2008 $0.86
Apr2007 $0.77
Apr2006 $0.69
Apr2005 $0.59
Apr2004 $0.42
Apr2003 $0.22
Apr2002 $0.01
Apr2001 $0.21
Apr2000 $0.21
Apr1999 $0.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.02
Apr2018 $1.09
Apr2017 $1.49
Apr2016 $1.38
Apr2015 $1.67
Apr2014 $1.59
Apr2013 $1.38
Apr2012 $1.29
Apr2011 $1.08
Apr2010 $0.75
Apr2009 $0.58
Apr2008 $0.74
Apr2007 $0.63
Apr2006 $0.50
Apr2005 $0.37
Apr2004 $0.24
Apr2003 $0.15

Recommended Reading:

Other ModernGraham posts about the company

NetApp Inc Valuation – April 2018 $NTAP
NetApp Inc Valuation – August 2016 $NTAP
NetApp Inc Valuation – March 2016 $NTAP
10 Best Stocks For Value Investors This Week – 9/26/15
NetApp Inc. Analysis – September 2015 Update $NTAP

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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