10 Updates

Rackspace Stock Trades In The Clouds But Analysts Warn The Party Could Slow

May 13 2014, 4:40pm CDT | by

IT-hosting and cloud-computing company Rackspace is trading in the clouds — up nearly 10% after Tuesday’s market action — on the heels of better-than-expected first quarter earnings results. But as...

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10 weeks ago

Rackspace Stock Trades In The Clouds But Analysts Warn The Party Could Slow

May 13 2014, 4:40pm CDT | by

IT-hosting and cloud-computing company Rackspace is trading in the clouds — up nearly 10% after Tuesday’s market action — on the heels of better-than-expected first quarter earnings results. But as the company celebrates its earnings beat and stock rally, more than a few analysts have issued words of caution about the company’s growth potential and future market performance in light of increased competition from technology giants Amazon, Google and Microsoft.

Rackspace reported $421 million in first quarter revenue after the closing bell Monday afternoon, beating the Street consensus of $419 million and marking a 16% increase over sales recorded during the same time in 2013. Net income for the quarter came in at $25 million, resulting in earnings of 18 cents per share, a penny below earnings from the year-ago quarter but six cents above the 12-cent per-share analyst estimate. Investors cheered the earnings beat, sending shares of Rackspace surging in after-hours trading Monday; the stock sustained those gains in early Tuesday trading, going on to open to a 14% pop and trade at or near a 10% gain throughout the day.

However, several different analysts issued lower price targets for Rackspace on Tuesday, issuing words of caution that highlighted everything from the competitive cloud computing landscape to lower selling, general and administrative expenses that slow growth in the future.

“The company will be challenged to differentiate itself from competitors and achieve sufficient pricing to deliver excess returns on capital,” wrote Morningstar analyst Rick Summer in a note on Tuesday, adding that Rackspace competes with Amazon, Google and Microsoft and could be hard-pressed to keep up, especially in light of the giants cutting the price to access their cloud infrastructure services.

“In the ‘unmanaged’ cloud segment, we aren’t convinced Rackspace can avoid the competition and believe it is likely to experience slowing growth or limited profitability for its public cloud offerings,” Summer said. “Either way, we remain concerned that Rackspace will not be able to earn returns above its cost of capital over any meaningful period.”

Morningstar has a $19 per share fair value estimate for Rackspace; the research agency has one of the lower price targets for the cloud-focused company. Other investment firms have higher price targets, even after Tuesday’s revisions: Canaccord Genuity, for instance, lowered its price target from $39 to $35.

“Without a permanent CEO and with increasing levels of competition from competent competitors, we remain concerned for this subsector in the second half of the year and remain cautious on the stock,” wrote Canaccord’s Greg Miller, referencing the departure of Lanham Napier, who retired as Rackspace CEO in February. Graham Weston , Rackspace co-founder, is serving as interim chairman.

Miller added that it is due to the aforementioned competition as well as the company’s lower SG&A spending that resulted in the lower price target.

Stephens’ analyst Barry McCarver, too, cited competition from Amazon, Google and Microsoft in his note about Rackspace but said it had little to do with lowering the Stephens Rackspace price target from $59 to $41. “Rackspace has suffered from headline risk and confusion about the exact service that it offers,” McCarver wrote on Tuesday, but going on to note that Rackpace management made sure to explain the difference between its services and Amazon Web Services/Google Cloud/Microsoft Azure, and in so doing got off to a “strong start” in re-branding. “While we lowered our price target, that was mainly due to trading patterns and the volatility that Rackspace’s stock has experienced and not our belief in the company.”

Analysts from Nomura, Wells Fargo and UBS issued similar sentiments, lowering Rackspace’s price target but attributing the revision less to a significant problem with a company than to a new EBITDA calculation. Nomura analyst Adam Ilkowitz lowered his price target from $42 to $39; Wells Fargo analyst Gray Powell lowered the stock’s target range from $48 to $51 per share to a target range of $38 to $41 per share, based on 7.5 to 8 times Rackspace’s 2015 EBITDA; and UBS analyst Steven Milunovich lowered his price target from $38 to $34, noting, “the stock got deeply oversold and this solid report should calm some fears, but we think the competitive dynamics will make the long term model difficult to achieve.”

Shares of Rackspace traded for gains around 10% throughout the day on Tuesday and eventually closed for an 8.5% gain despite all the price target revisions. Year-to-date, however, the picture still isn’t pretty: the IT provider is down a whopping 26.9% since the first day of 2014 trading. Shares of Amazon, Google and Microsoft, meanwhile, finished Tuesday with modest gains ranging from 0.6% to 1.1%.

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

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KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was b ...
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Update
8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammuddin Husse ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

6 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

6 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 mill ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

6 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Ministe ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 milli ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Scheme 20 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex) today. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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