What JPMorgan Is Watching For In The Nutanix Q1 Report

Nutanix Inc NTNX, a leader in hyperconverged infrastructure, is scheduled to release its fiscal first quarter results after the market close  Nov. 30.

Analysts, on average, expect the company to report a loss of 26 cents per share for the Q1, narrower than the year-ago loss of 37 cents per share. Revenues are expected to jump 60 percent to $266.86 million.

The Analyst

Previewing the results in a Monday note, J.P. Morgan analyst Mark Murphy maintained his Neutral rating on shares of Nutanix but increased his price target for the shares from $26 to $30.

The Thesis

Murphy expects consistent F1Q results from Nutanix, with an upward bias to his forecasts. (See Murphy's track record here.) 

The analyst said he expects Nutanix to continue to upend the IT infrastructure playbook, and accordingly he carries a positive fundamental bias.

The risk/reward is fairly balanced for now at current levels until the overall growth/margin equation improves, Murphy said.

J.P. Morgan highlighted the likelihood of Nutanix emerging as a pure software-only company and potential short-term oscillations in future quarters that stem from recent sales leadership changes.

The odds of Nutanix morphing into a pure software-only store by sidestepping appliance transactions and not recognizing the appliance portion on its books have elevated, Murphy said.

It could prove disruptive in the short-term, given the prospect of less revenues and higher margins, Murphy said. Investors will appreciate any such move and ascribe a higher multiple to the partially recurring software business with higher margins, he said. 

Recent sales leadership changes, including the appointment of Lou Attanasio as chief revenue officer and Sherry Lautenbach as SVP of Americas sales, could position Nutanix for its next leg of growth, according to J.P. Morgan. 

That said, Murphy expressed caution on the short-term disruptive effects of sales leadership changes in technology companies, especially as it comes immediately after a recent sales model realignment in the Americas.

The Price Action

Nutanix shares are up about 27 percent year-to-date, although they are trading off the $37 at which they closed on the company's Sept. 30, 2016 debut session.

At the time of writing, Nutanix shares were down 1.39 percent at $34.16.

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