As reflected at the current price of $105, what future NetApp operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, NetApp shares will need to reach $176. To achieve Upper quartile performance, NetApp’s stock price will need to reach $207 by 2029.
Executive Summary
- NetApp’s important characteristics: very high profitability, high financial strength, above average expected growth, and low stability. A big positive influence on NetApp’s valuation is its superior Profitability.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the NetApp Peer Group. Recent market returns have significantly outperformed the NetApp Peer Group. Total shareholder returns expected to equal the overall equity market. Based on current investor expectations, NetApp shares should reach a level of $159 by 2029 — an 9.2% per year total shareholder return. A 2029 stock price of $176 would reflect median performance and a price of $207 would be required to reach upper quartile performance.
- NetApp’s historical growth is modestly above average. Historical growth has been high relative to the NetApp Peer Group and forecasted growth is relatively high. Equity Growth has been superior. This factor has buoyed market perceptions of NetApp. NetApp’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. NetApp’s consensus growth expectations are lower than historical growth.
- Profitability has been NetApp’s biggest valuation strength. Return on Equity, and Asset Turnover are group leading. These factors have strengthened market perceptions of NetApp. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- NetApp’s risk profile is neutral. Overall variability has been very low with very low revenue variability, very high E.P.S. variability, and above average stock price volatility. Financial Strength is relatively very high and earnings’ expectations are below average. The debt/capital ratio has declined very significantly.
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