Wells Fargo On Nutanix's Earnings: Bullish Thesis Playing Out

Nutanix Inc NTNX's earnings report last week sent shares spiking higher by more than 8 percent before cooling down. The Nutanix bull vs. bear debate continues at a time when the stock is up 30 percent for the year.

The Analyst

Wells Fargo's Aaron Rakers maintains an Outperform rating on Nutanix's stock with a price target boosted from $40 to $43.

The Thesis

The bullish case for owning Nutanix's stock is playing out for two key reasons, Rakers said in a research report. (See Rakers' track record here.)

First, the company's earnings report made it clear it boasts a "strong [and] differentiated competitive positioning withexpanding hybrid data center reach," the analyst said. Nutanix's business is expanding beyond just a hyper-converged infrastructure play, with exposure to networking, security and Xi disaster recovery services, Rakers said. 

Second, management's transition toward a software-only model resulted in a significant increase in the visibility of the company's value proposition and longer-term earnings potential, the analyst said. In fact, a software-only model will result in a path for gross margins to hit low-to-mid-70 percent by the end of fiscal 2018, according to Wells Fargo.

Morgan Stanley

Morgan Stanley's Katy Huberty maintains an Equal-weight rating on Nutanix's stock with a price target boosted from $22 to $35. Nutanix benefited in the quarter from the "better-funded" federal agencies, especially defense, Huberty said.

• A 130-basis-point gross margin beat might be the beginning of the story, as a shift away from hardware could boost margins north of 70 percent, the analyst said.
• On the downside, Nutanix's new customer growth slowed "materially," she said. 
• A $35 price target implies a valuation in-line with software peers during similar periods of growth.

Maxim Group

Maxim Group's Nehal Chokshi maintains a Buy rating on Nutanix's stock with a price target boosted from $39 to $51.

• Nutanix's guidance implies better-than-expected business performance and sales productivity that beats projections, Chokshi said.
• The analyst's long-term S&M productivity metric has been revised to 37.5 percent, which marks a 150-basis-point improvement.
• The improved outlook is attributed to the removal of hardware-related revenue from the analyst's model, he said.

Price Action

Shares of Nutanix were trading lower by nearly 4 percent Monday afternoon.

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