Maxim Group Projects 50%-Plus Upside In Nutanix After Q1 Beat, Raise

Nutanix, Inc. NTNX shares are on fire Friday following stellar quarterly results. A sell-side analyst promptly acknowledged the standout first-quarter performance by lifting the price target for the shares.

The Analyst

Maxim Group analyst Nehal Chokshi reviewed Nutanix' quarterly results in a Friday note. The analyst reiterated a Buy rating on the shares of Nutanix and increased the price target from $39 to $51, up about 56 percent from current levels.

The Thesis

Product revenues exceeded expectations by 6 percent — and by 10 percent when normalizing for $8 million of zero percent gross margin hardware that was not passed through, Chokshi said. (Seen Chokshi's track record here.) 

This zero percent gross margin hardware revenue was billed by Nutanix's original design manufacturer, according to Maxim Group. 

Nutanix's guidance implied 4 percent reported product revenue growth and a 13-percent increase when normalizing for $20 million of zero percent gross margin hardware that will not be passed through, Chokshi said. 

Maxim lowered its out-quarter revenue estimates by $42 million for fiscal 2018 and by $191 million for fiscal 2019 to reflect a reduction in zero percent gross margin hardware revenue as a percent of billings from 26 percent in the first quarter of fiscal 2018 to 9 percent by the fourth quarter and 5 percent by the fourth quarter of fiscal 2019. 

Maxim maintained its gross profit and operating profit estimates for the second half of 2018 and fiscal 2019, but raised its gross and operating profit estimates for the first half of 2018 based on the company's quarterly results and guidance.

The Price Action

At the time of writing, Nutanix shares were soaring 10.98 percent to $36.40.

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