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NetApp (NTAP) to Report Q2 Earnings: What to Expect?

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NetApp Inc.NTAP is set to report second-quarter fiscal 2016 results on Nov 18. Last quarter, the company posted a negative earnings surprise of 33.3%. Moreover, NetApp has underperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average negative surprise of 12.4%.

Let us see how things are shaping up for this announcement.

Factors to Consider

NetApp reported lower-than-expected first-quarter results. Also, year-over-year revenue comparisons were unfavorable, primarily due to unfavorable foreign exchange rates.

Nonetheless, the company is expected to gain momentum in flash-based solutions with the newly introduced all-flash array, which will help it to gain traction in the storage market. The recent product launches and product refreshes will drive revenues and stringent cost controls will ensure margin expansion.

However, we believe that an uncertain IT spending outlook and competition from EMC Corp. EMC and Hewlett-Packard Company remain headwinds.

Earnings Whispers?

Our proven model does not conclusively show that NetApp is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:

Zacks ESP: NetApp's Earnings ESP is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 40 cents per share.

Zacks Rank: NetApp's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some other companies, which are worth considering as our model shows that they have the right combination of these two elements:

Seadrill Partners LLC SDLP with Earnings ESP of +12.00% and a Zacks Rank #1 (Strong Buy)

TiVo Inc. TIVO with Earnings ESP of +12.50% and a Zacks Rank #3

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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