NetApp, Inc. (NTAP) and Teradata Corporation (TDC) are two prominent tech companies engaged in data storage. NTAP offers storage solutions and cloud services to manage and share data on-premises and in private and public clouds worldwide. Its storage solutions include specialized hardware, software, and services that provide storage management for open network environments. In comparison, TDC focuses on providing a connected multi-cloud data platform for enterprise analytics. Its Teradata Vantage data warehouse and analytics platform allow customers to integrate and simplify their multi-cloud data and analytic ecosystems.
Rising demand for high-capacity data storage solutions in this digital era has been driving the data storage industry’s growth. The continued adoption of hybrid working models should further drive the industry’s growth. The data storage market is expected to grow at a 32.3% CAGR to $4.20 billion by 2026. Therefore, TDC and NTAP should benefit substantially.
While NTAP lost 7.5% over the past three months, TDC gained 6.3%. TDC is a clear winner with 6.5% gains versus NTAP’s negative returns year-to-date. But which of these stocks is a better pick now? Let’s find out.
Latest Developments
On February 23, 2022, NTAP acquired Fylamynt, a venture-backed, innovative CloudOps automation technology company that enables customers to build, run, manage and analyze workflows securely in any cloud with little to no code. With the increasing number of services and workflows as developing and maintaining integrations and automation becomes expensive, complex, and time-consuming, using Fylamynt's innovative low code, no code technology for cloud automation enables DevOps and SREs to scale, optimize and maintain their cloud operations at a fraction of the cost. The acquisition of Fylamynt builds on NTAP’s momentum and investment to grow the Spot by NetApp portfolio of leading CloudOps multi-cloud infrastructure management services.
On February 10, 2022, TDC announced the successful results from one of the largest-scale cloud analytic tests ever undertaken in the industry that helps enterprise customers run their complex analytic workloads on a single system in the cloud at an unprecedented scale. As accelerated adoption of AI/ML, IoT, and 5G technologies and increased data-driven decision-making drive the demand for highly scalable data and analytics technology and services, TDC can successfully operationalize analytics at scale on a single system of more than 1,000 nodes with no system downtime or outages. TDC should witness growing demand from enterprises in the coming months.
Recent Financial Results
NTAP’s net revenues for its fiscal 2022 third quarter ended January 28, 2022, increased 22.6% year-over-year to $1.61 billion. The company’s non-GAAP gross profit came in at $1.09 billion, indicating a 9.8% year-over-year improvement. Its non-GAAP operating income came in at $404 million, up 25.5% from the prior-year period. While its non-GAAP net income increased 32% year-over-year to $330 million, its non-GAAP EPS grew 30.9% to $1.44. As of January 28, 2022, the company had $4.18 billion in cash, cash equivalents, and restricted cash.
For its fiscal 2021 fourth quarter ended December 31, 2021, TDC’s total revenue increased 3.3% year-over-year to $475 million. However, the company’s non-GAAP gross profit came in at $300 million, representing a 3.1% rise from the prior-year period. Its non-GAAP operating income came in at $90 million, representing a 34.3% year-over-year rise. TDC’s non-GAAP net income came in at $64 million, up 52.4% from the prior-year period. Its non-GAAP EPS came in at $0.57, up 50% from the year-ago period. The company had $592 million in cash and cash equivalents as of December 31, 2021.
Past and Expected Financial Performance
NTAP’s EBITDA and EPS have increased at CAGRs of 0.5% and 4.1%, respectively, over the past three years.
NTAP’s EPS is expected to grow 8.5% year-over-year in the fiscal 2022 fourth quarter, ending April 30, 2022. Its revenue is expected to grow 8.2% year-over-year in its fiscal year 2022. Analysts expect the company’s EPS to grow at an 8.8% rate per annum over the next five years.
In comparison, TDC’s EBITDA and EPS have increased at CAGRs of 39.9% and 73.3%, respectively, over the past three years.
Analysts expect TDC’s EPS to fall 7.2% year-over-year in its fiscal year 2022 first quarter, ending March 31, 2022. Its revenue is expected to increase 5.3% year-over-year in fiscal 2022. The company’s EPS is expected to grow at a 12.8% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, NTAP is currently trading at 1.30x, 6.6% higher than TDC’s 2.49x. In terms of forward EV/Sales, TDC’s 2.49x compares with NTAP’s 2.65x.
Profitability
NTAP’s trailing-12-month revenue is almost 3.2 times TDC’s. NTAP is also more profitable, with a 22% EBITDA margin versus TDC’s 20%.
Furthermore, NTAP’s ROA and ROTC of 8.3% and 21.3% compare with TDC’s 6.9% and 14.2%, respectively.
POWR Ratings
While TDC has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, NTAP has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both TDC and NTAP have an A grade for Quality, in sync with their higher profitability ratios. NTAP’s trailing-12-month gross profit margin of 67.3% is 35.8% higher than the 49.5% industry average. TDC has a 62.4% trailing-12-month gross profit margin, 26% higher than the 49.5% industry average.
Of the 46 stocks in the B-rated Technology - Hardware industry, NTAP is ranked #21.
TDC is ranked #6 of 77 stocks in the Technology - Services industry.
Beyond what we have stated above, our POWR Ratings system has also rated TDC and NTAP for Stability, Sentiment, Momentum, Growth, and Value. Get all TDC ratings here. Also, click here to see the additional POWR Ratings for NTAP.
The Winner
The rising demand for efficient and secure data storage and management platforms from enterprises should benefit NTAP and TDC. However, a lower valuation makes TDC a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology – Hardware industry, and here for those in the Technology – Storage industry.
NTAP shares were trading at $84.08 per share on Friday afternoon, up $1.46 (+1.77%). Year-to-date, NTAP has declined -8.10%, versus a -10.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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