NetApp ( NASDAQ: NTAP ) shares fell nearly 2% in premarket trading on Tuesday as Morgan Stanley downgraded the networking company, noting that the safety trade in the sector that worked this year has "risks" going into next year, especially when taking into account a slowing backlog.
Analyst Meta Marshall lowered his rating on NetApp ( NTAP ) to underweight from equal-weight and cut the price target to $58 from $66, noting that at current levels, there is "room for downside."
Marshall added that is he is leaning "cautious" until estimates come down, adding that they are likely to move lower in the latter part of the first-half of 2023, as the picture on backlogs and demand becomes clearer.
"We downgrade NetApp ... on our view that NetApp's multiple has room for downside in current period of cloud business digestion, which had been the driver of premium in the name," Marshall wrote in a note to clients.
The analyst added that several other networking and connectivity stocks look more attractive, especially as estimates come down, including Lumentum Holdings ( LITE ), F5 Networks ( FFIV ), Trimble ( TRMB ) and Zebra Technologies ( ZBRA ).
In addition to downgrading NetApp ( NTAP ), Marshall upgraded Coherent ( NASDAQ: COHR ) to overweight, pointing out that the semiconductor company is likely to benefit from a peak in interest rates, which should lower interest expense and remove an overhand in investors.
Coherent ( COHR ) shares rose more than 3% to $36.49 in premarket trading.
Late last month, NetApp ( NTAP ) shares tumbled after it reported mixed second-quarter results and weak guidance for the third-quarter .
Analysts are largely bullish on NetApp ( NTAP ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates NTAP a HOLD .
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NetApp falls as Morgan Stanley downgrades, noting safety trade has 'risks'