It Could Take 'Several Quarters' For Nutanix To Overcome Headwinds; Morgan Stanley Downgrades

Katy Huberty of Morgan Stanley downgraded Nutanix Inc NTNX to Underweight from Equal Weight on execution issues and rising memory prices.

While January-quarter results were better than forecast, revenue upside was less than buy-side expected in the first full quarter post IPO.

“We downgrade to UW given it will take several quarters to fully address the headwinds,” Huberty wrote in a note.

Huberty, who cut his price target to $20 from $29, noted that HPE's acquisition of SimpliVity and Cisco's recent success with HyperFlex make tough competition for Nutanix.

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In addition, commodity driven margin pressure, lower OEM growth, fewer large deals, and higher DSOs Y/Y signal revenue upside is limited near term.

“Recent Dell channel incentives for hyper-converged solutions which were rolled out in early February combined with Nutanix's shift from commercial to large enterprise sales focus could re-accelerate the business, but likely not for ~6 months given typical sales cycles,” Huberty highlighted.

The analyst cut April quarter EPS estimate $0.10 to ($0.45) and FY 2017 EPS view drops by $0.12 to ($1.49) to reflect higher DRAM costs.

At last check, shares of Nutanix plunged 20 percent to $24.92.