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Switch's Guidance Shortfall Prompts JPMorgan Downgrade

Switch's Guidance Shortfall Prompts JPMorgan Downgrade

Data center designer and technology infrastructure company Switch Inc (NYSE: SWCH)'s second-quarter earnings report and disappointing guidance prompted JPMorgan to drop its bullish stance. 

The Analyst

JPMorgan's Richard Choe downgraded Switch from Overweight to Neutral with a price target lowered from $17 to $13.

The Thesis

Switch reported Monday afternoon with an in-line earnings report but lowered its 2018 guidance, Choe said in the downgrade note. (See the analyst's track record here.)

The company's sales forecast revision implies mostly flat revenue and margin performance from a year ago — which is disappointing, as Switch was expected to show a revenue ramp and margin improvement, the analyst said. 

Switch did report a record backlog of large deals in the pipeline and a very low churn rate of less than 0.1 percent, Choe said.

The data center company's growth appears to have been delayed to 2019 or beyond, which should have investors positive on the company's long-term strategic vision the analyst said. Investor concern with elevated spending should ease as new campus openings ramp capital expenditure down to $65 million per quarter, or $260 million annually, which Choe said is favorable compared to expectations of $265 to $310 million in 2018.

Switch's growth story and long-term favorable outlook remain unchanged, although a shift away from a bullish stance on the stock is warranted at this time due to slower growth, according to JPMorgan. 

Price Action

Switch shares were plunging 27 percent to $10.20 at the time of publication Tuesday.

Related Links:

What Started In Vegas Isn't Staying In Vegas: Switch Goes Global

Data Center Operator Switch's Business Model Snags Vote Of Confidence From Stifel

Photo courtesy of Switch. 

Latest Ratings for SWCH

Sep 2019MaintainsOutperform
Jan 2019Initiates Coverage OnBuy
Nov 2018UpgradesMarket PerformStrong Buy

View More Analyst Ratings for SWCH
View the Latest Analyst Ratings

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