Q4 Preview: Analysts Mostly Bullish on Rackspace (RAX); CapEx, Cloud Will Be In Focus


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Shares of Rackspace ( RAX ) are trading up nearly 1.7 percent Monday ahead of the release of its fourth-quarter results after the closing bell.

The Wall Street quarterly consensus for Rackspace is $0.15 per share in earnings on $281.02 million in sales. During the fourth quarter of last year, the company reported earnings of $0.10 per share on $214.73 million in total sales.

For the fiscal year 2011, analysts on the Street are currently estimating $0.53 per share in earnings on $1.02 billion in total sales.

The fourth quarter conference call is scheduled for 4:30 pm ET. Dial In: 877-718-5099 for U.S. and Canada; 719-325-4825 for international. Passcode: 8946052.

According to data from Bloomberg, shares of Rackspace Hosting have 12 Buy ratings, eight Hold ratings and one Sell ratings. The average price target on shares of RAX is $48.50 with a range from $40 to $58.

Analyst Comments:

  • In relation to the previous quarter, Goldman Sachs forecasts foreign currency may play a slight headwind. For the quarter, the firm estimates earnings will total $0.15 per share on $281 million in revenues, inline with the Street's consensus.

    An analyst at Goldman comments, "We expect RAX to once again provide annual customer gear capex estimates which should help investors further triangulate revenue growth expectations. Our 2012 customer capex forecast of $269 million and 32 percent constant currency growth rate implies a 49 percent ratio of growth capex to incremental revenues consistent with historic relationships."

    Goldman is reiterating its Buy rating and $54 price target.

  • Wells Fargo anticipates that lower FX rates will create $1.2 million in revenues headwinds during the quarter, similar to Goldman. The firm believes investors will mainly be focusing on new product initiatives, international expansion and positive commentary on enterprise wins during the conference call. Wells Fargo estimates total revenues of $280 million and EBITDA of $93.4 million of the quarter.

    "We remain very positive on RAX going into Q4 earnings as our channel checks with industry contacts, private managed hosting / cloud providers and even collocation companies indicate demand trends remain strong and that growth for managed hosting / cloud services should accelerate in 2012," reports an analyst at Wells Fargo. "Based on our checks, we are confident that revenue growth will accelerate in 2012 from an estimated 29% organic rate in 2011."

    Wells Fargo is reaffirming its Outperform rating and the company going into the quarterly conference.

  • Dougherty & Company predicts RAX added 4,500 servers during the quarter and noted the CAPX for these servers may be elevated due to the Thailand flooding effect on server pricing. For the quarter, the firm estimates EBITDA will total $93.8 million as revenues total $280 million.

    An analyst at Dougherty & Co. states, "We believe Rackspace offers a compelling cloud solution to its SMB customers, and we believe this segment of IT will be one of the fastest growing segments over the next few years. However, we believe the strong market position and growth prospects have been fully incorporated into the valuation."

    Dougherty & Co. is maintaining its Neutral rating and $40 price target on the company going into the quarterly results.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks

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