Oppenheimer Names Nutanix A 2018 Top Pick, Lays Out Bull Case

With the market extending its bull run, here's a recommendation from Oppenheimer for riding the rally. 

The Analyst

Analyst Ittai Kidron named Nutanix Inc NTNX as one of his top 2018 picks on the view that the market still underappreciates the company's shift to a software model.

Oppenheimer reiterated an Outperform on Nutanix with a 12-18 month price target of $43.

The Thesis

Nutanix' Dell/EMC relationship remains stable and the relationships with International Business Machines Corp. IBM and Lenovo Group Limited (ADR) LNVGY are expanding, Kidron said, citing his firm's channel checks. (See the analyst's track record here.) 

The company's exit from hardware removed channel friction while deploying Cisco Systems, Inc. CSCO or Hewlett Packard Enterprise Co HPE, the analyst said. This could expand Nutanix' reach once sales are fully engaged, he said. 

Nutanix is the leading hyperconverged infrastructure vendor, with only VMware, Inc. VMW as a strongly positioned alternative. The move to a software-only model means Nutanix can highlight platform breadth; drive faster adoption of its products; and catalyze an eventual shift to more services and subscription offering, Kidron said. 

"We believe this product breadth could make for a faster than expected software transition, bringing with it a quick reset to the hardware top-line adjustment and faster than expected gross margin increase," the firm said.

The Price Action

Shares of Nutanix are up more than 35 percent over the past year.

At the time of writing, the shares were down 2.04 percent at $37.62. 

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