Rackspace Hosting Rallies Despite Q1 Outlook

Rackspace Hosting, Inc. RAX rallied Wednesday, touching a 52-week high after beating fourth-quarter expectations and posting a disappointing outlook.

The cloud computing company traded down 5 percent in Tuesday's extended session, but turned around Wednesday, at one point spiking nearly 7 percent to $52.45.

Rackspace changed hands recently at $50.93, up 2.1 percent.

Analysts appeared generally upbeat on the company's results and said its outlook suggests a stable rate of growth.

Rackspace's forecast for 2015 revenue growth of between 14 percent and 18 percent "straddles" its 16.5 percent growth in 2014, according to Jefferies' Mike McCormack, who maintained a Hold rating.

"The potential lack of acceleration may be disappointing to some investors," according to McCormack, who nonetheless raised his price target 26 percent to $48 a share, citing an outlook for stable growth and widening margins.

Rackspace's range of projected potential growth was "fairly wide, and could be incorporating some conservatism" Morgan Stanley's Simon Flannery said.

Rackspace predicted full-year revenue of $2 billion to $2.1 billion, versus Wall Street's expectation of $2.08 billion.

For the current first quarter, the company forecast $477 million to $484 million in revenue, compared with the Street consensus of $490 million.

Flannery suggested that the perceived conservatism in guidance may be explained in part by the company's Chief Executive W. Taylor Rhodes' first year at the helm.

Rhodes was named to the position in September 2014, on the same day Rackspace called off a review of strategic alternatives concerning a sale of the company.

Flannery boosted his price target 4 percent to $51 and maintained an Overweight rating on Rackspace.

The company completed more deals worth more than $100,000 in the second half of 2014 than it did in the previous five quarters combined, noted Credit Suisse's Sitikantha Panigrahi.

Panigrahi boosted his 2015 earnings estimate 5 percent to $1.03 a share, maintaining an Outperform rating and $57 target.