Sell-Side Largely Bullish On Nutanix After Q4 Report, Undeterred By Disappointing Guidance

Cloud software company Nutanix Inc NTNX reported Thursday after the market close with better-than-expected fiscal fourth-quarter results. The company's first-quarter guidance fell short of the consensus.

The Analysts

• JMP Securities' Erik Suppiger maintained an Outperform rating and $60 price target on Nutanix shares.
• KeyBanc Capital Markets analyst Alex Kurtz maintained his Overweight rating and $68 price target.
• Morgan Stanley analyst Katy Huberty maintained an Equal-weight rating and increased the price target from $55 to $57.
• Raymond James' Simon Leopold maintained an Outperform rating and raised the price target from $64 to $74.
• Stifel analyst Brad Reback maintained a Buy rating and $64 price target.
• Wells Fargo Securities analyst Aaron Rakers maintained an Outperform rating and $70 price target.

JMP Securities: Nutanix Undervalued

Notwithstanding the stellar year-to-date gains, Nutanix  shares are undervalued, JMP Securities' Suppiger said in a note. The soft guidance reflected higher spending on R&D as well as S&M, which the analyst sees as prudent due to a large market opportunity.

The transition away from hardware is occurring more quickly than anticipated, Suppinger said. Strong performance in large accounts was behind the higher billings and will continue to fuel growth, he said.  

KeyBanc Remains A Buyer 

Solid software and support billings growth was due to the ongoing large deal strength and quarter-over-quarter growth in Global 2000 repeat purchases, analyst Kurtz said. The analyst attributed the subpar Q1 revenue guidance to a faster transition from hardware revenue.

The new term-based licensing model adopted this year, though likely accelerating longer-term subscription growth, posed execution risk, the analyst added.

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Morgan Stanley: Growth To Outweigh Near-Term Profit Outlook

Instead of fretting over Nutanix's aggressive spending plans, investors may do well to focus on the company's top-line and billings growth momentum in the near-term, said Morgan Stanley's Huberty. 

Despite aggressively reducing 2019 estimates, the analyst said investors will ultimately reward the company for investing as its growth overrides a muted near-term profit outlook.

Raymond James: New Phase On The Horizon

Nutanix's transition toward a software-centric business should propel growth, prodded by new products and opportunities from multicloud, Leopold said.

Raymond James is unperturbed by short-term pressures in Nutanix stock that were set in motion by weak guidance, increased expenses, high expectations, increasing investment and modeling complexity, the analyst said. 

Stifel: Nutanix to Sustain Double-Digit Software Growth 

Even as the business model transition continues, Nutanix posted a solid year-end print, Stifel's Reback said.

" ... We believe Nutanix should sustain strong double-digit software growth in coming years given its expanding product set," the analyst said. 

Wells Fargo: Q4 Print Increases Confidence 

Wells Fargo's Rakers expects the company's results to increase confidence in its "evolving invisible infrastructure platform strategy."

A focus on recurring software revenue contributions is a positive as Nutanix executes on a "portable subscription/SaaS revenue model" in 2019, the analyst said. 

The Price Action

At the time of writing, the shares were slipping 1.72 percent to $59.78.

Related Link: Nutanix Replaced By Cisco On Goldman Sachs' Conviction List, But Still A Buy