What to Expect From Rackspace Earnings

This leader in managed cloud is also the founder of OpenStack, the open source operating system for the cloud. It offers a diverse portfolio of cloud computing services, including public cloud, dedicated cloud, private cloud and hybrid cloud. All of its services are committed to open technologies. The equipment — including servers, routers, switches, firewalls, load balancers, cabinets, software and wiring — that is required to deliver services is typically purchased and managed by the company.

The stock was absolutely shredded when first-quarter earnings beat analysts’ estimates, while sales narrowly missed projections. The big problem was that Rackspace’s forecast for second-quarter sequential revenue growth of 1.5% to 2.5% was well below analysts’ estimates. The key for investors is that the company still reiterated its full-year guidance, even with the reduced expectations for the current quarter. While sequential growth would have to rise 4% in the third and fourth quarters to reach the bottom of the forecast, if the big deals that got pushed out come in, patient investors may win big.

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A few analysts weighed in on Rackspace ahead of its earnings report:

• RBC Capital has a Sector Perform rating but lowered its price target to $36 from $43.
• Wells Fargo reiterated an Outperform rating.
• Evercore ISI downgraded Rackspace to a Hold rating from Buy and lowered its price target to $40 from $50.

So far in 2015, Rackspace shares have had a very weak performance. The stock is down 31.5% year to date, though shares are up 7% in the past 52-weeks.

Shares of Rackspace were up fractionally at $32.32 Monday morning. The stock has a consensus analyst price target of $49.94 and a 52-week trading range of $28.80 to $56.20.