Why Buying NetApp Inc. (NTAP) Now Makes Sense

Although I’ve cited IBM as a slight threat in the storage business, there’s also Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL), both of which have been active seekers in the storage market. But both are fading, especially HP, which reported a year-over-year drop of 13% in storage revenue in its fourth quarter. And the company has stated recently that it expects every segment to suffer revenue losses except software. In other words, HP has very little chance to overtake NetApp.

Meanwhile, there’s Dell, which recently posted a 16%  storage decline in Q3. The company has not been much of a threat ever since it stopped reselling EMC gear in favor of its own “converged” solution. Chances are Dell won’t be announcing a sudden uptick in demand. But we’ll find out soon enough when it reports Q4 results today after market close. If you consider that IBM posted a 5% decline, this leaves NetApp and EMC as the two most logical options in what has now become a duopoly.

Too good to pass up
Past talks about NetApp’s competition should be over. Likewise, valuation concerns should be history. Even though NetApp still trades at a P/E that’s 7 points higher than EMC, NetApp does not have to face significant margin pressure — at least, not anymore, given that three rivals are quickly vanishing. While this makes NetApp an intriguing buy opportunity, the company’s now a compelling buyout candidate.

The first name that comes to mind is Oracle Corporation (NASDAQ:ORCL). “Database Giant Acquires a ‘Big Data’ Company”: The perfect headline would bring perfect synergy. Plus Oracle can then leverage its recent acquisition of Acme Packet, Inc. (NASDAQ:APKT). For now, investors can’t pass up 6% long-term revenue growth and 7% free-cash-flow growth. Add the fact that management announced a share buyback that is three times more than Q3, and what’s not to like?

The article Why Buying NetApp Now Makes Sense originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Acme Packet. The Motley Fool owns shares of EMC, International Business (NYSE:IBM) Machines, and Oracle.

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