NetApp has room for downside – Morgan Stanley

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NetApp (NASDAQ:NTAP) was downgraded to Underweight from Equal-Weight, with its price target cut to $58 from $66 by Morgan Stanley analysts in a note on telecom and networking equipment stocks on Tuesday.

They explained that the firm downgraded NetApp on its view that the company’s multiple has room for downside in the current period of cloud business digestion, which had been the driver of premium in the name.

“UW is a relative call, but we don’t believe estimate revisions are complete,” the analysts wrote. “NetApp reported a disappointing outlook for their premise and cloud businesses on their FQ2 earnings last month. Reason being, they saw a sweating of premise assets and digestion on the cloud business.”

The analysts added that commentary from the company’s most recent NASDAQ conference noted that the digestion period will likely be multi-quarter in duration, making Morgan Stanley “more unsure that estimate revisions are complete, particularly given the more challenged visibility NTAP has to this portion of the business.”

“While there is not a tremendous amount of downside to our price target, we do feel like the combination of estimates more at risk of near term revisions and underperformance of the asset investors are willing to pay more for, puts the name at risk of underperformance over next 12 months,” the analysts concluded.

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