RBC Capital Downgrades NetApp (NTAP) to Sector Perform; SolidFire Acquisition Makes Takeout Unlikely

RBC Capital downgraded NetApp (NASDAQ: NTAP) from Outperform to Sector Perform with a price target of $28.00 (from $38.00). Analyst Amit Daryanani called the deal to acquire SolidFire is materially dilutive to near-term EPS and will make NTAP a less likely takeout candidate."

"We are downgrading NTAP to Sector Perform from Outperform after the company announced the acquisition of SolidFire for $870M last night, as it simultaneously lowers the company's forward operating margins and makes NTAP a less likely takeout candidate," Daryanani commented. "Our downgrade is predicated on: 1) Adding Operating Losses: We think SolidFire will add $65–75M of operating losses to the model given the high cash burn rate and will dilute FY17 EPS by $0.25–0.30; 2) Doesn’t Change the Organic Headwinds: While the ~$100M of FY17 revenues NTAP will get from SolidFire are attractive, it will be sub 2% of the total company that we think could decline mid-to-high single digits; 3) Operating Margins Heading Lower: We think this transaction and future investments will place a downward bias on NTAP's target of 18–20% op-margins; and 4) Unlikely Takeout: Our initial upgrade thesis back in July was based on the potential for NTAP to be acquired, and we think this deal makes that unlikely."

For an analyst ratings summary and ratings history on NetApp click here. For more ratings news on NetApp click here.

Shares of NetApp closed at $27.60 yesterday.

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