Analysts React To Nutanix's Broad Pipeline, Target Delay

Nutanix Inc NTNX closed up 6.4 percent Wednesday after management stoked optimism at analyst day. Some experts came away more heartened than others.

The Rating

Raymond James analyst Simon Leopold maintained a Market Perform rating on the stock.

Bank of America Merrill Lynch maintained a Buy rating and a $51 price target.

The Theses

Management pushed its $3 billion billings target back two quarters to accommodate investments in consumer base expansion and lead generation.

Raymond James expects it to fall short of forecasts. Citing the expense of customer acquisition, Leopold anticipates higher operating expenses and lower sales than presently predicted.

“We believe in the Nutanix narrative and opportunity set, but we think its recovery will take several quarters, and we worry that results through the balance of CY19 could prove disappointing,” Leopold wrote in a note.

“Management has indicated that to compensate for slower sales, it will spend more,” he added. “Although we consider this action logical, we regard it as disappointing. In the past, Nutanix cited its mantra as the rule of 40 (sales growth plus operating margin at or above 40 percent), and we do not expect the model returns to this target through CY20.”

The emphasis on lead generation is nonetheless encouraging to Bank of America, which expects Nutanix to achieve its targets.

“We continue to see medium-term growth potential with an increasing software product suite,” the analyst team wrote.

To Bank of America, Nutanix’s expansive pipeline seems to support total-addressable-market growth. But Raymond James said the product breadth may cause lack of focus in the sales team.

“We like the narrative,” Leopold wrote. “Nutanix software addresses the challenges encountered by enterprises attempting to embrace cloud economics on premises and to operate in a multi-cloud world.”

Price Action

At time of publication, Nutanix was set to open Thursday at $41.40 per share.

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