Shares of software company NetApp (NASDAQ:NTAP) have outperformed the broader markets so far this year. NTAP stock has gained almost 22% in value on a year-to-date basis compared to a 15% gain for the S&P 500 Index (SPX). Positive investor sentiment toward tech stocks and margin improvements have driven NTAP stock higher. Nonetheless, the weak demand environment could hurt the company’s outlook and limit upside potential in the near term.
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Digital Transformation to Support Growth
NetApp is a data-centric software company. Its portfolio of cloud services and storage infrastructure positions it well to benefit from the ongoing digital transformation. The company’s management highlighted during the Q4 conference that its customers tightened their budgets but have not stopped their investments in applications and technologies supporting business productivity and growth.
Further, enterprises will continue to invest in their digital transformation projects, which augur well for NTAP’s long-term growth. NTAP is also expected to benefit from lower input costs and an improved product and service mix.
NTAP Stock: Near-Term Headwinds to Limit Upside
While digital transformation and margin improvement are positives, NTAP’s financials could remain under pressure in the short term as enterprises have tightened their IT spending budgets in response to macro headwinds.
The company expects its first-quarter Fiscal 2024 revenue to be between $1.325 billion and $1.475 billion, the midpoint of which reflects a decline of 12% year-over-year.
NTAP also expects the operating environment to improve in the second half of the current fiscal year. However, the full year’s revenue is projected to decrease by low-to-mid single-digit percentages, reflecting a weak economic and demand backdrop.
Is NetApp Stock a Buy, According to Analysts?
Several analysts raised their price target on NetApp stock following the company’s Q4 earnings call. However, most analysts remain on the sidelines due to the weak demand. Moreover, the average NTAP stock price target indicates that it could decline slightly from here.
NTAP stock has received four Buy, seven Hold, and two Sell recommendations for a Hold consensus rating. Further, analysts’ average price target of $72.69 implies 0.5% downside potential.
