In a note released Tuesday, Morgan Stanley analyst Simon Flannery upgraded Rackspace HostingRAX 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:
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- 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.
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