Jefferies: Reward Potential In Nutanix Outweighs The Risk

Nutanix Inc NTNX, which is steadily transitioning to a recurring revenue model as it embarks on the journey toward becoming a pure software company, is a bankable investment, according to Jefferies.

The Analyst

Analyst John DiFucci upgraded Nutanix from Hold to Buy and maintained a $42 price target.

The Thesis

Since reporting its fiscal second-quarter results Feb. 28, Nutanix shares have lost about 31 percent, rendering the valuation compelling, DiFucci said in the Monday upgrade note. 

The post-earnings dip came about due to below-consensus third-quarter guidance issued during the earnings call, with Nutanix blaming the predicament on inadequate spending on lead generation and a difficult environment in hiring sales reps, the analyst said. 

The company said the issues are being addressed — and that the pipeline should build into the fourth quarter, leaving it in a good position to enter fiscal 2020, DiFucci said.

Jefferies' revised estimates are now roughly in-line with the consensus, DiFucci said, adding that he sees good growth in new products and progress in the transition to a subscription model. 

"We believe the continued growth of customers, large deals and the revamping of the partner program better position Nutanix for the future and make us inclined to believe that the go-to-market issues will prove temporary," the analyst said. 

Jefferies sees risks tied to "go-to-market disruption around the transition to subscription revenue, competition and the dynamic landscape of HCI."

The company's March 12 customer call and March 20 analyst day should serve as catalysts, according to Jefferies. 

The Price Action

Nutanix shares were up 4.9 percent at $36.17 at the time of publication Monday. 

Related Links:

Jefferies Downgrades Nutanix, Says Cloud Company Is Trading At Fair Value

Susquehanna Downgrades Nutanix, Projects Profitability — In 2022

Photo courtesy of Nutanix.