4 Reasons NetApp Stock Is A Bargain Play
NetApp's presence in storage solutions and management gives it a good foot in the door for its cloud computing business.

With VMware (NYSE:VMW) and Salesforce.com (NYSE:CRM) holding dueling vendor conferences this week, expect tech investors’ focus to sharpen on cloud computing stocks like Oracle (NASDAQ:ORCL), Google (NASDAQ:GOOG), Cisco (NASDAQ:CSCO), Dell (NASDAQ:DELL) — and of course, the host companies themselves. But one company not to miss amid the bright lights and shiny mirrors is Sunnyvale, Calif.-based NetApp (NASDAQ:NTAP).

NetApp’s edge is that its storage systems and software can store, manage, protect and retain massive amounts of their customers’ data securely and off-site. Enterprises, government agencies and other users can reduce the number of physical servers they own and manage, gaining more storage space and better performance — at a lower total cost. The company also partners with companies like IBM (NYSE:IBM), Cisco, VMware and Symantec (NASDAQ:SYMC) to deliver those benefits as part of broader, integrated cloud solutions.

Why does that matter to investors? Because cloud computing suffers from the same challenges as most emerging, game-changing technologies: getting potential buyers from “What Is It?” to “I Want It.” And having a strong position in a well-defined niche like storage solutions and storage management is an edge in a market that’s still defining itself. So here are four reasons NetApp is a bargain play in the cloud computing space right now:

Cloud Storage Makes Sense

C-level executives know data — including bandwidth-heavy media like full-motion video — is growing exponentially. They have to store it, manage it, secure it, protect it from unauthorized access or disaster and retrieve it fast — even from smartphones and tablets. And continuing to build larger data centers with more physical servers and additional staff to manage them is delivering less value at a rapidly escalating price.

Partnerships Help Deliver Robust Solutions

At the VMworld show on Tuesday, credit card processor EVO Merchant Services announced it is using an integrated backup solution from NetApp and Syncsort to reduce the time and complexity of its system backups. For EVO — which processes 385 million transactions for 285,000 merchants worth $26 billion per year — the integrated solution is making it easier to meet service level agreements.

Strategic Acquisitions

Since storage companies are an attractive target for big cloud players like IBM, Dell and EMC (NYSE:EMC), NetApp has done some shopping too, buying LSI’s external storage systems unit Engenio this year and storage management vendor Bycast in 2010. That having been said, NetApp itself is a pretty attractive acquisition target now.

Solid Fundamentals

With a market cap of $13.86 billion, NTAP has a price/earnings-to-growth ratio of 0.98, indicating that the stock is fairly valued. It has an attractive debt position, with $4.71 billion in total cash compared to only $1.26 billion in total debt. On Aug. 17, NetApp reported softer-than-expected first-quarter revenue and tempered expectations for the second quarter, citing weaknesses in the federal government and U.S. financial markets.

Bottom Line

NTAP expects the federal and U.S. financial sectors to bounce back in its fiscal third and fourth quarters. The stock fell 20% to $33.32 on its earnings news, setting a new 52-week low. By Monday, however, the stock had recovered to close at $37.32. Trading at more than 38% below its 52-week high of $61.02 on Feb. 11, unless the IT sector suffers another collapse, NTAP is a steal at under $43.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

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