Switch Analysts Bullish After Q4 Print Despite Muted 2019 Forecast

Data center operator Switch Inc SWCH reported Tuesday after the market close with forecast-beating fourth-quarter earnings, but issued below-consensus revenue guidance for fiscal 2019.

The Analysts

BMO Capital Markets analyst Tim Long maintained an Outperform rating on Switch and increased the price target from $10.50 to $11.

Raymond James analyst Frank Louthan reiterated a Strong Buy rating and $11 price target.

BMO Bullish On Switch's Pipeline, Valuation 

Switch's results were solid, with gross, operating and EBITDA margins exceeding expectations, Long said in a Tuesday note. The analyst said he views the below-consensus 2019 guidance range positively, as it suggests a healthy pipeline.

In the fourth quarter, the company secured over 400 contracts valued at over $73 million, and several deals are on track to close this year, the analyst said. 

The 2019 EBITDA guidance was below BMO's estimate but roughly in-line with the consensus, Long said. The capex guidance of $210 million to $260 million represented a 15-percent year-over-year decline at the midpoint, he said. 

"We believe the sales force increases will bolster the company's go-to-market strategy and lead to further contract wins this year," the analyst said. 

Raymond James Says Guidance Could Prove Conservative

Switch's guidance appears very conservative and designed to have upside — contingent on the closure of some larger deals the company is pursuing, Louthan said in a Tuesday note. 

"Our largest concern at this point is the ability of the new commissioned sales team to execute and work well with the legacy salary-based sales team," the analyst said.

The conservative outlook has already factored in the learning curve for the new sales people, he said. 

With a fresh approach to investor relations and communication with investors, Raymond James is of the view that the stock can improve from current levels.

The Price Action

Switch shares were up 6.87 percent at $9.95 at the close Wednesday. 

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4 Analysts Issue Their First Research Notes On Switch

Photo courtesy of Switch.