Sell-Off in Rackspace Hosting Seems Highly Overdone, says Analysts at Cowen

Shares of

fell more than 7 percent following the opening bell on Tuesday December 3rd. The reason for the sell off was attributed to investors concerns that

announcement of lowering pricing for most of its cloud and server related services can be viewed as a negative for Rackspace. Analysts at Cowen believe that a 7 percent sell-off is “highly overdone” and that “current levels offer excellent entry” based on three observations. The first observation relates to price. Google was “the least competitive from a pricing perspective and insinuated that the company wasn't yet ready to sart aggressively competing but that when they did it was likely they would become more aggressive on pricing.” With that being said, the analysts noted they are not surprised with Google's announcement which had been widely expected. Secondly, Google's market does not align with Rackspace. Google is operating in an area dominated by the

and

thus Google's announcement is “less of a concern for Rackspace.” Finally, Rackspace has demonstrated an ability to grow within an extremely competitive environment. The company's 9.5 percent sequential growth in its most recent quarter is in-line with industry growth rates. The analysts concluded by acknowledging that Google's announcement “isn't a positive event” for Rackspace, but is more of a “headline risk.” Despite the recent sell off shares at current levels are heavily skewed to the reward side and shares maintain an Outperform rating, according to the analysts.