Market Overview

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

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

Shares of Rackspace Hosting (NYSE: RAX) fell more than seven percent following the opening bell on Tuesday. The reason for the sell off was attributed to investors concerns that Google's (NASDAQ: GOOG) 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 seven 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 start aggressively competing but that when they did it was likely they would become more aggressive on pricing.” The analysts noted they are not surprised with Google's announcement, which had been widely expected.

Related: Analysts at FBR Take a Bullish Stance on 3D Printing Companies

Secondly, Google's market does not align with Rackspace. Google is operating in an area dominated by the's (NASDAQ: AMZN) and Microsoft's (NASDAQ: MSFT) 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.

Posted-In: Amazon cloud computing Cowen GoogleAnalyst Color News Asset Sales Analyst Ratings Best of Benzinga


Related Articles (AMZN + GOOG)

View Comments and Join the Discussion!

Latest Ratings

PNRJefferiesInitiates Coverage On
IPHIBank of AmericaMaintains80.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at

Nintendo Expected To Miss Full-Year Wii U Sales Forecast

UPDATE: Reports Best Sales Day Ever on Cyber Monday 2013