Analyst Reiterates Outperform Rating On Nutanix After Meeting With Management

Justification Of Rating

Lucia left the meeting with three main takeaways, which reinforces his bullish stance:

1. Nutanix is adding additional structure to its sales teams which will enable a better penetration of larger accounts over time (but the transition does represent a near-term execution risk).
2. Nutanix's hypervisor, AHV, is becoming more important as a differentiator as companies continue to migrate away from legacy hypervisor solutions.
3. The company's management said that Dell and EMC sales reps are being compensated equally for Nutanix's OEM XC Series sales but 25 percent less in VMware vSphere environments. This indicates that Dell and EMC's preference is to sell its own solutions in VMware environments. As such, customer demand and preference for Nutanix will drive OEM sales through Dell and other OEMs.

Also, Lucia highlighted the fact that his channel checks remain positive which signals the company is gaining momentum as the leading hyperconverged solution in the market.

Bottom line, shares of Nutanix are trading at 2.2x the analyst's 2018 estimated sales and is undervalued. A $35 price target represents an EV of 4.9x 2018 sales.