In a report published Monday, JMP Securities analysts Patrick Walravens and Peter Lowry reiterate a Market Outperform rating and $62 price target on shares of Rackspace Hosting, Inc. RAX, on the back of “positive business momentum and an AWS offering,” and in spite of negative sentiment.
The experts attended the company's Rackspace: Solve 2015 event in Dallas and the Red Hat RHT Summit in Boston last week, and made the most of both events, by running some industry checks.
First, the analysts wanted to address the negative the sentiment issue, following disappointing first quarter results. The firm “asked partners and industry sources what they thought of Rackspace’s current business momentum and value proposition, which yielded seven positive and one negative data points,” the report explains.
Next, Walravens and Lowry explored with industry sources and partners if Amazon.com, Inc. AMZN would “allow Rackspace to manage workloads on Amazon Web Services (AWS)." The analysts also collected seven positive and one negative data points on the subject.
The firm is modeling earnings of $0.89 per share for 2015, above consensus of $0.87 per share; earnings of $1.15 per share for 2016, versus consensus of $1.11 per share; and earnings of $1.53 per share for 2017, compared to consensus of $1.34 per share.
Rackspace’s stock currently trades at a 2016E EV/adjusted EBITDA multiple of 6.3x and a 2016E EV/revenue multiple of 2.2x. Meanwhile, JMP’s target of $62 implies respective multiples of 10.5x and 3.7x.
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