Rackspace Analyst Roundup
Shares of Rackspace (NYSE: RAX) jumped higher after the company reported a 50 percent EPS beat and strong forward guidance.
Tuesday, analysts from FBN, JMP, Pacific Crest and Raymond James gave their opinions of the results.
FBN: Maintains Underperform Rating, Lowers Price Target to $30
FBN analyst Shebly Seyrafi noted that the company reported better-than-expected results and guidance, but is still not impressed with the reported number of upgrades.
“Net upgrades of .9% came in below the 1.3% consensus and declined from 1.1% in FQ4," the analyst wrote. "While churn declined to .6% from .7% in FQ4, installed base growth of only .3% was the lowest in a year.”
Seyrafi also sees tough competition from the likes of Google and Amazon, and underwhelming gross margins.
Related: Priceline Analyst Roundup
JMP: Maintains Outperform Rating, Maintains $67 Price Target
Patrick Walravens of JMP Securities likes the Rackspace report and sees shares of the company more than doubling. Unlike analysts at FBN who see margins further falling, Walravens anticipates increasing margins as the company differentiates itself from a commoditized business.
Walravens also commented on an increased sales force and marketing push. The $67 price target is the result of 4.4 times EV/2015 revenue and 12.4 times EV/2014 EBITDA. These multiples are a slight discount to SaaS peers.
Pacific Crest: Maintains Sector Perform Rating, Raises Price Target to Mid-$30s
Michael Bowen of Pacific Crest was impressed with Rackspace’s earnings report, causing him to raise “2014 revenue growth estimate to 16.2% y/y from 15.7%, and our adjusted EBITDA margin estimate slightly higher to 33.1%, which is near the midpoint of the company's guidance range, from 32.3%.”
The mid-$30s price target was derived with a 7.7 times 2014 EV/EBITDA multiple, up on increased earnings estimates and the company’s ability to win large contracts.
Raymond James: Maintains Outperform Rating, Maintains $43 Price Target
Raymond James analyst Frank Louthan maintained his rating on Rackspace, commenting that, “the business has more growth and the high end of the guidance is achievable but the CEO transition and competitor price cuts are likely to remain an overhang for the stock.”
Louthan further commented that, “OpenStack does appear to be gaining momentum with larger enterprises… While we understand that does not necessarily equal business for Rackspace, we do believe increasing OpenStack adoption should be beneficial in the long run to its founder and still one of its largest contributors.”
Shares of Rackspace closed Tuesday at $29.88, up 8.54 percent.
Latest Ratings for RAX
|Sep 2014||JP Morgan||Downgrades||Overweight||Neutral|
|Jul 2014||DA Davidson||Upgrades||Underperform||Neutral|
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