Buyers Beware, NetApp (NTAP) Has Broken

NetApp Inc. (NASDAQ:NTAP) offers storage hardware and data management software to enterprises.  The company has been adding many new partners to its cloud services, including Verizon Communications Inc. (NYSE:VZ), which bring more choices and new value to their customers.  The stock us up 15% YTD, but has dropped more than 12% in the last six weeks.  Should investors buy, sell or hold NTAP?

NTAP gets over 60% of revenues from the network attached storage market, but as more companies are looking to combine public and on-premises cloud resources to optimize IT efficiency and business flexibility, NetApps’s Data ONTAP provides a universal data management platform to facilitate data and workload movement across multi-cloud environments. 

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NetApp and Verizon Enterprise Solutions announced a collaboration to redesign traditional cloud-based storage models to deliver NetApp Data ONTAP as a virtual storage appliance for Verizon Cloud clients. The software delivers software-defined storage, adding additional deployment and management flexibility for clients implementing Verizon Cloud Compute and Verizon Cloud Storage.

NetApp continues to work closely with key partners to test and document solutions including four solutions certified with Red Hat Inc’s (NYSE:RHT) Enterprise Linux OpenStack Platform and newly certified solutions with Rackspace Hosting, Inc.’s (NYSE:RAX) Private Cloud Software. In addition, NetApp and Cisco have completed initial testing with FlexPod Datacenter and Red Hat Enterprise Linux OpenStack Platform to provide FlexPod customers with implementation and deployment guidance in the form of reference architecture

Seagate Technology owned EVault Inc. has collaborated with NetApp to provide cloud services to NetApp FlexPod Datacenter and FlexPod Express customers. EVault has also been enlisted as NetApp’s partner program.  It has been 3 years since the Cisco Systems, Inc. (NASDAQ:CSCO) partnership with NetApp began, and with the development of FlexPod, the company has experienced some tremendous growth, more than doubling new installations year-over-year, and now has more than 3,000 customers globally.

Earnings and stock performance:

The company is expected to report a profit of $0.63 per share when it reports earnings on Wednesday November 13, which would be 23% increase from the same quarter a year ago.  Last quarter NetApp earned $0.53 per share, which was $0.04 better than analyst estimates. 

Daniel J. Warmenhoven, Executive Chairman of the Board sold 10,000 shares at $41.539 per share, which was $415,393 worth of stock on October 21.  He has also sold 123,516 additional shares since September 1 2013. 

Although the company has added many new partnerships recently, the stock price continues to slide lower.  Shares are down over 8% from when the company last reported earnings on August 14.  Based on the real-time trading report published by Stock Traders Daily, shares of NTAP have broken below long-term support, and support is now converted resistance.  By rule, as long as the stock remains below converted resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels.  That would make NTAP a sell/short at resistance, with risk controls in place if resistance breaks higher.

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