Goldman Offers Divergent Views on EMC, NetApp

Data storage hardware and software makers EMC (NYSE: EMC) and NetApp (NASDAQ: NTAP) watched their stocks rise and fall after the pair were the subjects of rating changes by Goldman Sachs analyst David Bailey today.

NetApp, which Bailey added to his “buy” list in September and is up more than 142 percent in the last year, was downgraded from a “buy” recommendation to “neutral,” primarily on valuation concerns.

In a research note this morning, Bailey pointed out that NetApp shares are now within 3 percent of his aggressive $35-a-share, 12-month price target, and its phenomenal run in the last year came during a period in which the S&P 500 gained only 3 percent.

NetApp shares shed $0.98 a share, or 3 percent, to $32.85 on the news in morning trading today.

Last week, NetApp and Microsoft announced a new three-year deal to improve the technical integration between the two companies’ cloud computing, virtualization and data storage and management applications.

NetApp has fared better than most data storage vendors in the economic downturn, and once again beat Wall Street estimates when it reported its quarterly results last month.

Meanwhile, EMC saw its shares edge up $0.26, or 2 percent, to $17.13 after Bailey upgraded the stock to a “buy” rating from “neutral,” citing what he expects to be “greater margin expansion” for the data storage giant as enterprise customers increase their IT spending budgets in 2010.

Calling EMC’s current price “an attractive entry point,” Bailey raised his earnings-per-share forecast to $1.14 from $1.10 in 2010 and to $1.27 a share from $1.24 a share in 2011. He also moved his 12-month price target up to $21 a share from $20 a share.

In November, EMC gave its investors an unexpected bit of bad news when it announced it would eat a $100 million restructuring charge in its fourth quarter that would crimp earnings by $0.05 a share.

However, EMC did post better-than-expected sales ($3.52 billion) and earnings ($0.23 a share) in its third quarter.

Bailey expects both EMC and NetApp to benefit from an uptick in IT spending.

Larry Barrett is a senior editor at InternetNews.com

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