Rackspace Shares Downgraded At Morgan Stanley Following Earnings

In a report published Tuesday, analysts at Morgan Stanley downgraded Rackspace Hosting, Inc. RAX from Overweight to Equal-weight. The price target was lowered from $55 to $49. The company announced its 1Q15 results and 2Q15 guidance below the estimates. Although the Q1 results indicate top-line deceleration, Rackspace has reiterated its guidance for the full year. The analysts believe that this implies strong performance for the company in 2H. However, the Morgan Stanley also expects delay in enterprise bookings and significant customer churn to adversely impact revenue growth opportunities for the company during 2015. Rackspace expects to witness constant currency revenue growth of 1.5-2.5 percent, quarter on quarter, during 2Q15 due to "slower customer installations and customer churn." "We believe the stock is fairly valued at current levels after a strong run in recent quarters. Rackspace is well positioned for the longer term but appears to face some near term headwinds, in our view," the analysts said. The stock surged 105 percent in 2014, following the company announcing the details of its financial, strategic and management direction.