UPDATE: Morgan Stanley Upgrades Rackspace Hosting
In a note released Tuesday, Morgan Stanley analyst Simon Flannery upgraded Rackspace Hosting(NYSE: RAX) from Equalweight to Overweight and announced a price target of $45.
In explaining this upgrade, Flannery listed three key factors that led to this decision:
- Reaccelerating revenue momentum - Flannery explained that, despite a challenging year, Rackspace showed improving bookings momentum coming out of 2013, which he expects will continue through 2014. In addition to this, Flannery believes Rackspace has a "strong market position in the rapidly growing cloud space" and expects revenue to grow as much as 17 percent this year.
- Differeniated product offering - Despite stiff competition in the could space industry, especially from Amazon Web Services, Flannery believes the combination of "strong industry growth" and "differentiated service offerings" will lead Rackspace to profitable growth over time.
- Attractive valuation - Flannery says Rackspace shares are currently trading at a "modest" value, which is 7.5 times his 2014 EBITDA estimate. He also noted that this is a "near all-time low" and below a three year next-twelve-months average of 13.2.
Possibly trading on the news of this upgrade, Rackspace is trading up ~7 percent at last check.
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