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Optimistic Outlook Sparks NetApp Shares

NetApp shares continued their impressive ascent Thursday, rallying up more than 5 percent to a new 52-week high of $27.91 a share after the storage software company boosted its second- and third-quarter profit and revenue targets.

During the firm's annual analyst meeting today, CFO Steve Gomo predicted NetApp (NASDAQ: NTAP) would earn between $0.29 and $0.30 a share in its second quarter on sales in the range of $870 million to $885 million.

Analysts following the stock had previously forecast a second-quarter profit of $0.29 a share on sales of $862 million.

In the third quarter, Gomo told investors to expect earnings between $0.35 and $0.36 a share, up substantially from the consensus target of $0.32 a share. Sales are now projected to come in at between $910 million and $930 million, well above the consensus estimate of $894 million.

NetApp, which competes with the likes of IBM, EMC and Symantec in the storage software sector, was one of the few vendors that managed to grow its business in the second quarter.

In the second quarter, research firm IDC reported that worldwide storage software spending fell almost 10 percent from the year-earlier period to $2.84 billion. While most of its competitors, particularly IBM and CA, lost share, NetApp's replication business kept its sales and share price on the rise.

"The storage software market is slowly starting to recover with positive growth over the first quarter of 2009," IDC analyst Michael Margossian said in the report. "While only two out of the top five vendors experienced growth over the previous quarter, the replication market grew 5 percent compared to Q1 09 led by NetApp, which has been refocusing its efforts and grew 20 percent from the previous quarter."

NetApp, the fourth-largest storage software vendor, managed to eke out a slight improvement in total sales in the quarter ($241 million vs. $239 million) and improved its overall market share to 8.5 percent from 7.6 percent.

In August, the company became the first data storage vendor to offer native Fibre Channel over Ethernet (FCoE) connectivity in its storage systems.

Even before Thursday's advances, NetApp shares have been on a tear -- the stock was trading at $10.39 a share in November. Its swollen valuation, fueled in part by takeover speculation, is the main reason 20 of the 35 analysts tracking the stock maintain a "hold" or "neutral" rating on the stock.

On Monday, RBC Capital Markets analyst Amit Daryanani bucked the trend by upgrading the stock to an "outperform" rating, boosting his 12-month price target to $33 a share from $26 a share.

In a research note, Daryanani said key NetApp suppliers such as Jabil Circuit and Xyratex had better-than-expected shipments for their August quarters and that they look for NetApp's demand for components to remain strong, through at least their November quarters.

"We view [the stock] as an attractive way for mid- to large-cap investors to play the anticipated IT spending recovery in the second half of 2009," he said.



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