Oppenheimer Reiterates Outperform on Rackspace (RAX) Following 4Q

Oppenheimer maintained an Outperform rating on Rackspace (NYSE: RAX), and cut the price target to $30.00 (from $43.00), following the company's 4Q earnings report. Revenue grew 2.7% seq. and EBITDA margins of 35.1% beat Oppenheimer's estimate by 150bps, driven by lower than expected OPEX. EPS of $0.24 beat $0.19 estimates given the EBITDA beat and lower share count. Management highlighted for the first time that its OpenStack Public Cloud efforts would be delegated to supporting a sticky customer base.

Analyst Timothy Horan commented, "RAX reported a slightly better-than-expected 4Q, with revenue of $522.8M in line, EBITDA of $183.6M beating our $175.6M estimate. However, full-year revenue guidance of $2.16M was 4% below our est. Positively, EBITDA guidance of 34% shows confidence in profitability levels and combined with low CAPX guidance of 21% of revenue, FCF generation is strong. That said, 2016 will largely be another transition year, as AWS is the focus for RAX, but it needs to improve its capabilities. RAX is positioning itself and its resources to capture incremental workloads that will likely flow to AWS/AZURE. RAX's execution has been poor; at least it is going in the right direction, and we expect growth to bottom midyear. Positively RAX's services are in strong demand."

For an analyst ratings summary and ratings history on Rackspace click here. For more ratings news on Rackspace click here.

Shares of Rackspace closed at $18.17 yesterday.

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