Nutanix Inc NTNX shares rose 46 percent after the company's second-quarter report, prompting Goldman Sachs to remove the cloud software name from its Americas Conviction List while adding networking giant Cisco Systems, Inc. CSCO to the list.
An addition to the list signifies that Goldman identifies the stock as having the best alpha generation opportunity among stocks in the U.S. and Canada.
Nutanix was initiated and added to the conviction list on Feb. 6. What changed between then and now?
Goldman analyst Rod Hall maintained a Buy rating on Nutanix with a $59 price target. Hall maintained a Buy rating on Cisco shares and raised the price target from $51 to $54, raising the valuation multiple by one turn to reflect comp group multiple expansion.
Nutanix: Up 69% Since February
Nutanix's 46-percent run since its Q2 report on March 1 stands in contrast to the S&P 500's 1-percent drop during the same time. The company is in the early innings of a transition toward a software-centric business model, driving revenue and gross margin upside, Hall said in a note.
Nutanix's vision of becoming an enterprise hybrid cloud platform is "compelling," the analyst said. The 2021 target of $3 billion in software and support billings is achievable, he said.
"While we don't necessarily see valuation as a constraint on longer-term upside in shares, we believe that the current price reflects more near-term revenue growth potential than when we first initiated."
Nutanix shares jumped 69 percent since the stock was added to Goldman's Conviction List, Hall said.
Cisco: A Defensive Stock
With stock market volatility on the rise since the start of the year, Goldman said it sees Cisco stock as relatively defensive.
The company's end-markets remain healthy and are improving, with U.S. top four carrier capex growing 13 percent and hyperscale capex growing 29 percent in 2018, Hall said.
Although wary of a potential macro downturn that would impact wider enterprise spending, the analyst said both hyperscale and carrier spending are late in the cycle.
"We also believe the current campus switching refresh provides better than normal support for Cisco's enterprise business," Hall said.
The Price Action
Compared to Nutanix's 162-percent gain over the past year, Cisco shares are up a more modest 28 percent.
At the time of writing, Nutanix shares were slipping 4.3 percent to $50.60, while Cisco was seen adding 1.1 percent to $43.54.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.