Rackspace Hosting, Inc. (NYSE:RAX) in a San Antonio, Texas based IT hosting company that helps customers successfully architect, deploy, and run their most critical applications, whether it be on a public cloud, private cloud, dedicated servers, or a combination of platforms. The operating system for Rackspace Hosting, Inc. (NYSE:RAX) is called OpenStack, which provides both large and small organizations an alternative to closed cloud spaces, decreasing the risks of lock-in that are often associated with proprietary platforms. The company released its first quarter earnings report on Monday, May 12 after the closing bell, providing better than expected results. Subsequently, shares of Rackspace jumped almost 15% on Tuesday morning.
During their Q1 ’14 earnings report, Rackspace Hosting, Inc. (NYSE:RAX) reported $0.18 earnings per share, exceeding analysts’ consensus estimate of $0.12. During the same quarter last year, Rackspace posted $0.19 earnings per share. The company had profit of $421.00 million for the quarter, beating the consensus estimate of $419.63 million. The corporation’s quarterly proceeds were up 16.2% on a year-over-year basis. On average, analysts predict that Rackspace will post $0.61 earnings per share for the current fiscal year.
Throughout the first quarter, Rackspace’s total server count progressively increased by over 2,300 servers for a total of 106,229. Rackspace Chairman and CEO Graham Weston explained, “We are encouraged by qualitative factors, including the thousands of new customers we added in the quarter, including one of the largest we’ve ever landed. […] Each of these customers values our managed cloud approach and chose us over providers of less expensive unmanaged infrastructure.” Rackspace expects second-quarter revenue of $434 million to $440 million, aiming well above analysts’ predictions of $435.5 million.
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Shares of Rackspace opened at $31.48 on Tuesday, May 13. The company has a 1-year high of $54.20 and a 1-year low of $26.18. The stock’s daily moving average is $30.52 and has a 50-day moving average of $30.00. The market cap for Rackspace is $4.24 billion and its P/E ratio is 48.98.
On May 13, Raymond James analyst Frank Louthan maintained an outperform rating on the stock with a $43 price target. He reasoned, “OpenStack does appear to be gaining momentum with larger enterprises… While we understand that does not necessarily equal business for Rackspace Hosting, Inc. (NYSE:RAX), we do believe increasing OpenStack adoption should be beneficial in the long run to its founder and still one of its largest contributors.” Louthan has a +6.9% average return over the S&P 500 and a 65% success rate according to TipRanks.
Also on May 13, Cowen & Co.’s analyst Colby Synesael reiterated an outperform rating and raised his price target from $52 to $57. He noted, “While bears may call-out limited net install growth of 0.3% we continue to believe the metric is of lesser value than it has been historically […]To this point management suggested it will likely change what metrics it discloses starting next quarter, which we think makes sense considering the changing nature of the company although we caution providing even less metrics would be a step in the wrong direction.” Synesael has a +2.7% average return over the S&P 500 and a 68% success rate.
Separately, on May 13, Needham & Co. analyst Richard Kugele reiterated a HOLD rating, saying “the stock will likely see some relief rally […] as they did not miss (as some had predicted) & gradual recovery in the business continues. That said, our longer-term competitive concerns remain, namely the company’s ability to secure a greater quantity of large enterprise-sized customers and to invest enough in R&D to build leading applications and offerings on top of OpenStack ahead of players such as AWS.” Kugele has a -0.2% average return over the S&P 500 and a 46% success rate.
On the other hand, on May 13 FBN Securities analyst Shelby Seyrafi maintained an underperform rating with a $30 price target. He explained, “Net upgrades of .9% came in below the 1.3% consensus and declined from 1.1% in FQ4. While churn declined to 0.6% from 0.7% in FQ4, installed base growth of only 0.3% was the lowest in a year.” Seyrafi has a -3.7% average return over the S&P 500 and a 38% success rate.
Carly Forster writes about stock market news. She can be reached at [email protected]