Bullish Q3 Expectations Push Nutanix Shares Higher

Shares of Nutanix Inc NTNX were trading higher by more than 10 percent Tuesday, partly due to an encouraging report by analysts at William Blair. The firm's Jason Ader maintains an Outperform rating on Nutanix's stock with no assigned price target but a path toward $34 per share (see his track record here).

Recent checks and discussions with value-added resellers indicate "broad adoption" of Nutanix's products within the midmarket and large enterprise which bodes well for the company's October quarter, Ader commented in a research report. The checks also indicate a "very strong" quarter for large deals, some of which are in the high seven-figure range. The discussions also suggest a "rising uptake and higher customer satisfaction" for the company's home-growth hypervisor (AHV), the analyst continued. This represents a key offering that is considered a differentiation versus competitors.

"We believe that vendors like Nutanix are well positioned to benefit from customer imperatives around on-premises infrastructure modernization—with the goal being to achieve cloud-like simplicity and economics in their private data centers," the analyst also wrote. "Our VAR discussions bear this out, as the demand pendulum appears to be swinging toward emerging, best-of-breed vendors with more modern approaches and away from traditional, one-stop shop vendors that are often viewed to be out-of-step with the latest trends."

Finally, Nutanix's desires to become an all-software business is a move could prove to be a move that is needed to eliminate the margin fluctuations that is inherent in hardware focused entities, the analyst concluded. By using a 6.0 times enterprise-value-to-sales multiple on a pro forma revenue estimate for calendar 2018 yields a valuation price of $34 per share.

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