BTIG On Nutanix: Hyper-Convergence Driving Hyper-Expectations

BTIG’s Edward Parker started coverage of Nutanix Inc NTNX with a Neutral rating, as he advises investors to wait for a better entry point.

Nutanix is a leading provider of hyper-converged infrastructure (HCI), in which storage and computing assets are collapsed into a single tier.

Initiation

“We see support for a multi-billion dollar business but are not yet convinced that a platform-level paradigm shift on the scale described by the company is poised to occur,” Parker wrote in a note.

Parker posed, “What degree is the company’s success to date a result of differentiation in technology, engineering, and intellectual property versus differentiation in component integration, packaging, ergonomics, marketing, and go-to-market execution?”

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In response, the analyst explained Nutanix should differentiate itself in higher-level software services to sustain that large scale high-margin business.

“With this in mind, we would closely monitor the progress of Nutanix’s efforts to deliver more software services and the extent to which customers value them,” Parker noted.

Valuation, Expectations

Meanwhile, the analyst expects the company could sustain its near-term top-line upside and billings growth.

However, Parker considers the valuation is full as shares trade at 7.5x FY17 EV/sales and 5.2x FY18 EV/sales.

Parker said he “would be hesitant putting new money to work with revenue multiples at the high-end seen in systems infrastructure. We’d wait for pullbacks before recommending the stock.”

Shares of Nutanix closed Wednesday’s trading at $29.99.

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