Barron’s likes the stock. It trades at 12.7* 2010 earnings estimates, cheaper than EMC. Paul Wick of Seligman values it at $25-30 -- $30 being the price he’s looking for in a takeover of the company.
On the other side of the coin, we’ve got Ashok Kumar at Collins Stewart.
This is the salient bit of Kumar’s piece:
The majority of NetApp systems are used as file servers. As customers reduce their headcounts, that means there are fewer end-user accounts for them to manage. In many businesses today there is the strong possibility that the demand for file server storage capacity are decreasing - something that was almost beyond comprehension a year ago. If file server storage capacity requirements are declining, customers are not going to be buying NAS systems from NetApp - or anybody else for that matter.
For many years NetApp has built its business around maintaining high margins, which are certainly going to fall, given the economic environment. However, it's not clear that NetApp understands that this is going to happen and it's possible that the company is trying to maintain higher pricing levels in an attempt to save their margins.
The Skew: I’m inclined to agree with both sides of this. NetApp’s margins are likely to come under longer-term pressure. The company is also an attractive acquisition candidate for the likes of IBM, whose storage business is awful, and Cisco, who could very nicely compliment their other network offerings. I will say that Kumar’s case about declining margins has overhung the stock forever.
Storage needs tend to grow over time. It’s up to network administrators to clamp down on storage quotas for users. If IT budgets shrink, the layoffs in most of corporate America could dictate lower planned spending on everything and storage may be an easy cut – after all, they can simply cut quotas to existing users and throttle it forward again if they have issues. Discretionarily, its certainly vulnerable.