JPMorgan Upgrades Nutanix Ahead Of Q4 Report, Sees Balanced Risk-Reward Profile

Hyperconverged infrastructure and software provider Nutanix Inc NTNX is a clear beneficiary of the boom in the cloud computing industry, and JPMorgan is dropping its bearish stance ahead of the company's fourth-quarter print. 

Analysts, on average, expect Nutanix to report a narrower loss of 21 cents on revenues of $300.57 million. A year-ago, the company reported a loss of 33 cents on revenues of $226.1 million.

The Analyst

Analyst Mark Murphy upgraded Nutanix from Sell to Neutral and increased the price target from $39 to $54.

The Thesis

The demand environment for hyperconverged Infrastructure — and for Nutanix, "the leader in the space" — remains strong, Murphy said in a Thursday note. (See his track record here.) 

The analyst cited JPMorgan's latest round of Nutanix checks and its VMware, Inc. VMW survey.

Going by strong Q2 performance by data center infrastructure companies including VMWare, Murphy predicts a strong Q4 for Nutanix, particularly in bookings. 

On the negative side, incremental operating expenditures in 2019 are likely to pressure margins, the analyst said. 

The timing is also difficult for Nutanix, as the quarter is seasonally the weakest, when revenue growth slows from 40 to 20 percent, Murphy said. 

In a normal environment, the analyst said this could serve as a drag on shares. With investors now buying into "transitional stories," Murphy does not forecast much of a hit to sentiment despite the P&L deterioration.

"Net-net, while we continue to view Nutanix as a highly innovative technology disruptor upending the IT infrastructure playbook, we are admitting our mistake in underestimating investor appetite and view NTNX shares as having a balanced risk-reward profile at current levels."

The Price Action

Nutanix shares have jumped about 73 percent year-to-date period compared to a more modest 17.5-percent gain by the Nasdaq Composite Index.

The stock was down 0.88 percent at $60.59 at the time of publication Thursday. 

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