Nutanix Named An Underappreciated Top 2017 Pick At Oppenheimer

Oppenheimer has named Nutanix Inc NTNX as one of its top picks in 2017. It believes investors are underestimating the company’s strong competitive position in the hyperconverged market and ability to post gross margin upside along with bottom-line improvement.

Nutanix' enterprise cloud platform connects to public cloud services and converges silos of server, virtualization and storage into an integrated solution.

Why Nutanix?

Despite being crowded by Cisco Systems, Inc. CSCO, Dell/EMC, Hewlett Packard Enterprise Co HPE, Simplivity and others, analyst Ittai Kidron doesn't see any competitor able to replicate Nutanix's overall value proposition in the hyperconverged space.

“We believe investors underestimate how strong Nutanix's position is and we simply don't see any competitor in position to displace it in 2017,” Kidron wrote in a note.

Kidron also pointed out Nutanix’s ability to deliver gross margin upside beyond the guided 60 percent near-term target as its business scales, higher-margin deferred is recognized as revenue, and software revenue mix improves. The analyst sees possibility of one to two points of gross margin upside.

The analyst also noted that Nutanix would benefit from a growing OEM contribution with Dell/EMC shows strong support for Nutanix and Lenovo ramps are better than expected.

Financials

On the financial front, Kidron believes Nutanix is set for a string of positive quarters and sees $30 million–$40 million of revenue upside in FY 2017 given lack of competition and growing OEM exposure.

“While investor expectations and valuation already reflect a positive bias to results, we believe meeting the CYE-17 positive FCF target would provide a boost,” Kidron added.

Kidron reiterated his Outperform rating on the stock, with a target price of $38.

At last check, shares of Nutanix rose 2.16 percent to $29.81.