Insider Sales: Dismissing NetApp as a Buyout Target (NTAP, DELL, HPQ, ORCL, IBM, NZ, CSCO)

Insider selling often does not usually offer any more insight than insider buying.  But when you have a hot sector that is full of rumors about who the next storage, cloud, and Cisco-thwarting company will be acquired, insider selling may be viewed by some that insiders do not believe a huge-premium buyout is headed the way of the company.  We have seen a wave of insider share sales in recent days in shares of NetApp, Inc. (NASDAQ: NTAP).

Dell Inc. (NASDAQ: DELL) lost in its 3PAR acquisition to Hewlett-Packard Co. (NYSE: HPQ).  Oracle Corporation (NASDAQ: ORCL) has been a large acquirer of companies, and Oracle’s CEO recently noted: ‘We’d love to have a storage market share like NetApp’s.’ ” International Business Machines Corp. (NYSE: IBM) recently announced an agreement to buy Netezza Corporation (NYSE: NZ)for $1.7 billion in cash to own its data warehouse, analytic, and monitoring appliances franchise.  The big new threat and rival is Cisco Systems Inc. (NASDAQ: CSCO) as it moves from networking to all aspects in networking into data center sales, and this is part of what is forcing large data center and IT giants to adapt as companies are smart enough to know that Cisco is a formidable and tough competitor.

NetApp is one of the great growth stories of recent years.  Shares were briefly under $36.00 in early August before the latest wave of tech mergers and now shares are north of $50.00.

NetApp would make a great acquisition for the position it holds with a solid performance in enterprise storage and data management software and hardware products.  The problem is that its valuation is high and it may be no different than”the one that got away”‘  Thomson Reuters has estimates of $2.03 EPS for April-2011 and $2.23 EPS for April-2012, so its $50.60 share price gives a normalized forward earnings multiple of about 23.75-times one-year forward blended earnings expectations.  Its trailing 12-month P/E ratio is over 37 according to Yahoo! Finance and the company now boasts a market cap of $18+ billion.

This article was about insider selling, so here are some of the insider sales and/or registrations of note in recent filings from the last ten days or so:

• Dir. Wall sold 30,000 shares
• VP Salmon sold 42,300 shares
• CFO Gomo registered 90,000 shares
• Off. Mendoza registered 103,551 shares
• holder Kryder registered 73,604 shares
• CEO Georgens registered 200,000 shares

Again, insiders sell stock all the time in most tech companies.  Insiders often have planned share sales and any company officer by now knows that estate planning of ANY person is not smart if it requires that wealth concentration be locked up in only one asset.

Normally, we do not even cover these events any longer unless they are worth noting, This is more than 500,000 combined over the last two weeks, which would  be worth more than $25 million in today’s prices.  If insiders had been approached about a real deal that involved a high-premium buyout would they still be selling shares?  Maybe.  Common sense would dictate not.

Thomson Reuters also now presents an interesting case.  The $50+ share price has now surpassed an average analyst price target that is closer to $46.00.  That alone won’t be a clear case for or against the company, but it shows that the analysts covering the stock either have to downgrade the stock or they will have to raise their targets.

JON C.  OGG