Why Rackspace Earnings Prompted So Many Analyst Target Cuts

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Rackspace Hosting Inc. (NYSE: RAX) reported its fourth-quarter financial results this past week. At first investors did not like or even receive these earnings well, but the following day the stock bounced off a 52-week low and ended the week higher than it had started. However after the fact, analysts cut their ratings and price targets.

The company had $0.24 in earnings per share (EPS) on $522.8 million in revenue. That compared to consensus estimates from Thomson Reuters of $0.23 in EPS on revenue of $521.39 million. The same period from the previous year had EPS of $0.26 and $472.42 million in revenue.

In terms of guidance, the company expects revenue to be in the range of $517 million and $521 million for the first quarter, and to be $2.08 billion to $2.16 billion in revenue for the 2016 full year. Consensus estimates call for $530.68 million in revenue in the first quarter and $2.21 billion in revenue for the full year.


After the earnings report a few analysts weighed in on Rackspace:

  • Cowen has an Outperform rating and lowered its price target to $36 from $52.
  • JPMorgan has a Neutral rating and lowered its price target to $22 from $34.
  • Pacific Crest lowered its rating to Sector Weight.
  • Barclays downgraded to an Equal Weight rating from Overweight and lowered its price target to $21 from $35.
  • Credit Suisse downgraded to a Neutral rating from Outperform and lowered its price target from $50 to $22.
  • Goldman Sachs has a Neutral rating and lowered its price target to $21 from $24.
  • RBC has an Outperform rating and lowered its price target to $26 from $31.
  • UBS has a Neutral rating and lowered its price target to $19 from $28.
  • Jefferies has a Hold rating and lowered its price target from $33 to $21.
  • Raymond James has a Strong Buy rating and lowered its price target to $28 from $48.
  • Stifel downgraded it to Hold from Buy.
  • Oppenheimer has an Outperform rating and lowered its price target to $30 from $43.

Shares of Rackspace closed trading at $20.03 on Friday, with a consensus analyst price target of $27.06 and a 52-week trading range of $15.05 to $56.20.