Rackspace (RAX) Strong Results and Better Outlook, Wells Fargo Notes; PT Lowered

Rackspace (NYSE: RAX) reported better than expected Q3 results with about 1% upside on revenue and a 5% beat on EBITDA expectations. Most notably sequential revenue trends improved meaningfully from the pace of 1H'15 and were on-par with the level of growth seen in 2H'14.

On the call, RAX stated that its top 50 enterprise customers are growing at a pace that is significantly faster that the company average. RAX stated that the MSFT partnership has already resulted in several large deals while the first month with the AWS partnership also yielded new customers and existing customers who increased incremental workloads with RAX.

Wells Fargo analyst, Gray Powell, says "We like RAX's hybrid cloud strategy and think revenue visibility is higher today than in the past two years.". He increased his 2015/2016 EBITDA ests to $675MM/$754MM from $665MM/$750MM and FY15/FY16 EBITDA/sh estimates to $4.80/$6.01 from $4.65/5.59. However, despite the increases in estimates, he reduced his valuation range to $37 - $38/share from $41 - $44 due to a shift to FCF multiples to derive target prices.

No change to Outperform estimate.

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 $27.09 yesterday.

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