Analysts React to Rackspace Earnings with Downgrades
Since the cloud MSP reported its second-quarter earnings, investment analysts have changed their ratings.
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Royal Bank of Canada last week downgraded Rackspace Technology shares. Analysts went from an outperform rating to sector perform.
Speaking of target share prices, Credit Suisse Group dropped its number on Rackspace from $12 to $10. Citigroup, too, reduced its forecast, going from $16 to $13. BMO Capital went even further, lowering its expectations from $10.50 to $7.
However, Credit Suisse analyst Matthew Cabral kept Rackspace at an outperform rating. That’s a different action compared to several other banks. Read on …
Barclays cut Rackspace’s rating to “underweight,” a downgrade from “equal weight.” It also set a $5 price objective on Rackspace (recall that Royal Bank of Canada put that figure at $7). An underweight assessment means analysts think the stock will not perform as well as that of its peers. (We can safely assume not all is lost — Rackspace is keen to keep building its channel presence, and channel is a significant revenue generator.)
Meanwhile, Deutsche Bank now has a $6 target share price for Rackspace, compared to the $9 it previously had set. Its analysts also placed a “hold” rating on Rackspace in the wake of last week’s earnings report. That means Deutsche Bank’s experts think Rackspace will perform at least as well as its competitors.
Raymond James analysts joined several of their fellows by marking Rackspace with a “market perform” after last week’s earnings report.
“Given the disruption to the sales team and other parts of the organization that are inherently part of that process, we believe growth recovery and improved [free cash flow] is 9-12 months away,” analyst Frank Louthan wrote in a note to clients last week, via SeekingAlpha. “As such, we find it difficult to maintain a constructive rating on shares of the company.”
Louthan lowered Rackspace’s rating from outperform. He did so after noting that Rackspace appears to have abandoned its intent to explore a sale and instead split into two units, one supporting private cloud, the other supporting public cloud.
Of course, no one yet knows where Rackspace is really headed. The company is holding its strategies close to the vest until its analyst day next month.
When it comes to third-quarter earnings, investment analysts at William Blair predict Rackspace will reap 9 cents per share. That’s down 10 cents from the firm’s prior forecast. Rackspace’s guidance for the third quarter shows that it expects between 8 and 10 cents per share, before all the general accounting is done.
In the meantime, William Blair has a “market perform” rating on Rackspace. That’s a neutral indicator that equates to a “hold” recommendation. Similarly, Oppenheimer thinks Rackspace will report earnings of 9 cents per share for the third quarter.
Finally, in terms of the stock market, “they” say to buy low and sell high. Well, now might be the time to snap up some Rackspace shares. On Monday, the company was trading not far from its 52-week low of $5.40 — fluctuating around the $5.84 mark. That’s a far cry from Rackspace’s 52-week high of $18.50.
The company’s market cap now hovers around $1.21 billion, down from $2.82 billion at the end of 2021 and $3.81 billion in 2020.
Finally, in terms of the stock market, “they” say to buy low and sell high. Well, now might be the time to snap up some Rackspace shares. On Monday, the company was trading not far from its 52-week low of $5.40 — fluctuating around the $5.84 mark. That’s a far cry from Rackspace’s 52-week high of $18.50.
The company’s market cap now hovers around $1.21 billion, down from $2.82 billion at the end of 2021 and $3.81 billion in 2020.
In the wake of the latest round of Rackspace earnings, investment analysts have changed their expectations for the company’s performance.
Recall that, last week, Rackspace earnings came in lower than hoped. Rackspace — the Texas-based managed cloud computing provider — already had said its second-quarter per-share earnings would weaken compared to previous periods. It reported 17 cents per share; analysts wanted to see 23 cents per share. Overall, Rackspace showed a net loss of $40.6 million for the three months ended June 30. Its revenue rose a mere 4% compared to a year ago. That was $12.5 million less than analysts had forecast.
Much of Rackspace’s performance will hinge on how it tackles its public-cloud-private-cloud conundrum. At first, this past May, Rackpace execs said they were exploring sale options. That tactic appears to have dissolved in favor of splitting the company into two groups, though there is not yet confirmation on that. All eyes are on Rackspace’s analyst day, coming up next month.
In the intervening weeks, investment analysts may continue to deliver recommendations stemming from the Aug. 9 Rackspace earnings call and subsequent guidance. Find out what big names – including Credit Suisse, Royal Bank of Canada, Raymond James and Barclays – already have done in the past week. See the slideshow above.
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