By Mackenzie Tatananni

As NetApp stock slumps following weaker-than-expected fiscal third-quarter revenue, analysts reiterated their confidence in the data-storage company, arguing that it will continue to perform in-line with peers.

Revenue of $1.64 billion missed the $1.7 billion Wall Street forecast, according to FactSet, while adjusted earnings of $1.91 a share were consistent with analysts' expectations.

For the current quarter ending in April, NetApp said it anticipates revenue of $1.73 billion, missing analysts' calls for $1.76 billion. The company also sees adjusted earnings in the range of $1.84 to $1.94 a share. Analysts were expecting $2.

Evercore ISI analysts led by Amit Daryanani reiterated an In Line rating on the stock and trimmed their price target to $120 from $140. Shares plunged 15% to $101 in premarket trading, with the new price target suggesting a potential upside of nearly 19%.

In spite of the revenue shortfall, the company's operating expense discipline -- which management noted was "basically flat year-over-year" -- helped the company achieve in-line earnings, Daryanani wrote.

The analyst noted that the top-line miss was attributed to a "sales execution issue" in addition to the timing of several large deals, rather than softness in IT spending, save for some weakness in the public sector.

There was a silver lining. Daryanani pointed to "strong performance" in the company's Public Cloud business, growth in its Keystone storage-as-a-service offering, and wins related to AI infrastructure.

While NetApp's outlook reflects the impact of its divesture from Spot, an Israeli startup the company acquired in 2020, Daryanani noted that it excludes the potential impact of tariffs.

NetApp CEO George Kurian addressed the company's earnings call. "We have a global supply chain that has given us the ability to fulfill products to customers from multiple locations, and that is a very highly flexible supply chain," Kurian said.

He explained that the company had removed its "dependency on China" over the past few years, and would not be impacted by taxes levied on Chinese imports.

While NetApp has a facility in Mexico where it builds product, there is "flexibility to move those capabilities to other locations that are not tariffed in a fairly short period of time," Kurian added, assuring analysts that the company has "several contingency plans."

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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February 28, 2025 08:00 ET (13:00 GMT)

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