Market Overview

Cloud Infrastructure Stocks Ready to Boom? (AKAM, EQIX, INXN, RAX)

In the wake of the Hosting and Cloud Transformation Summit in Las Vegas, analysts at Cowen & Co. have released a new report suggesting that merger and acquisition activity in the sector could occur soon.

So far this year, little of the increased spending on storage and networking that surveyed chief information officers had earlier forecast has yet to come to pass.

In their report, the analysts recommended cloud infrastructure providers Akamai Technologies (NASDAQ: AKAM), Equinix (NASDAQ: EQIX), Interxion (NYSE: INXN) and Rackspace Hosting (NYSE: RAX). Below we take a look at how these stocks have fared and what analysts in general expect from them.

Note that the Cowen team also singled out fiber providers Cogent Communications (NASDAQ: CCOI), Level 3 Communications (NYSE: LVLY) and Lumos Networks (NASDAQ: LMOS) in their research report.

Akamai Technologies

This Cambridge, Massachusetts-based content delivery and cloud infrastructure services provider is looking to the Web security business to boost its revenue. It sports a market capitalization of more than $9 billion, and its long-term earnings per share (EPS) growth forecast is almost 14 percent.

The consensus recommendation of the 23 analysts surveyed by Thomson/First Call is to buy shares, and it has been for at least three months. The mean price target, or where analysts expect the share price to go, is barely any higher than the current share price, as well as lower than the recent 52-week high.

Shares are still trading close to that 52-week high, and the share price is up more than 21 percent since the beginning of the year. Over the past six months, the stock has outperformed not only the broader markets, but also competitor Level 3 Communications.

Equinix

This Redwood City, California-based data center services provider recently opened a second data center in Rio de Janeiro. But short interest in the more than $8 billion market cap company is greater than 28 percent of the float. Its long-term EPS growth forecast is more than 25 percent, though.

Of the 21 analysts surveyed, all but four recommend buying shares, and those four rate the stock at Hold. The analysts see plenty of room for shares to run, as their mean price target is more than 28 percent higher than the current share price. That target would be a new multiyear high.

The share price has retreated more than 27 percent from the 52-week high back in May, including a more than seven percent drop in the past week. Over the past six months, Equinix has underperformed the likes of AT&T (NYSE: T), as well as the broader markets.

See also: Equinix Amends Senior Credit Facility

Interxion

This Dutch provider of carrier-neutral colocation data center services fell short on both the top and bottom lines in its most recent quarterly report. Its market cap is less than $2 billion, and the long-term EPS growth forecast is around 19 percent. But the return on equity is less than eight percent.

Seven of the 15 analysts polled rate the stock at Strong Buy, and four others also recommend buying shares. However, the share price is higher than their mean price target, suggesting there is no upside potential at this time. Even the street-high target is only marginally higher that the current share price.

The share price is more than 14 percent lower than it was three months ago, and shares were trading near a year-to-date low about a week ago. Over the past six months, this stock has underperformed both the Nasdaq and the S&P 500.

Rackspace Hosting

Rackspace appointed its first-ever chief customer officer in September. The San Antonio-based IT and cloud computing company has a market cap near $7 billion. The long-term EPS growth forecast is more than 19 percent. Note that short interest is more than 11 percent of the float.

Just eight of the 22 analysts surveyed recommend buying shares; the consensus recommendation has been to hold shares for the past three months. The mean price target is less than three percent higher than the current share price, though that is partly due to the recent pullback.

The share price retreated about five percent on Thursday, though it is still more than 23 percent higher than three months ago. The stock has outperformed larger competitor AT&T and the Dow Jones Industrial Average over the past six months.

See also: Benzinga's Weekend M&A Chatter

At the time of this writing, the author had no position in the mentioned equities.

Posted-In: akamai technologies AT&T Cogent Communications Cowen & Co. Equinix interxion Level 3 Communications Lumos Networks Rackspace HostingTrading Ideas Best of Benzinga

 

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