On Wednesday, Evercore ISI adjusted its price target for Rackspace Technology Inc . (NASDAQ:RXT), raising it to $3.00 from the previous $2.50, while keeping an In Line rating for the stock.
The firm's decision followed Rackspace's third-quarter earnings report, which showed both revenue and earnings per share (EPS) at the higher end of the company's guidance.
Rackspace reported Q3 revenues of $675.8 million and an EPS of -$0.04, compared to analysts' expectations of $675.1 million and -$0.07, respectively.
Rackspace's Q3 performance indicated a decline in both Public and Private Cloud revenues year-over-year (y/y) and quarter-over-quarter (q/q). Public Cloud revenue was down 3% y/y and 2% q/q, reaching $418 million, but exceeded company expectations.
The segment also achieved a record level of bookings since the company's reorganization into two business units, with significant growth in both y/y and sequential bookings.
Services revenue remained flat q/q, halting a trend of previous declines. The Private Cloud segment saw revenues of $258 million, a 14% y/y decrease and a 1% q/q drop, aligning with the company's forecasted range.
Despite the revenue downturn, Rackspace managed to improve its operating margins by 180 basis points, thanks to cost efficiencies, leading to a better-than-expected EPS.
The report highlighted that both the Public and Private Cloud segments experienced sequential margin increases, with Public Cloud margins rising by 39% q/q to 3.9% and Private Cloud margins increasing by 7% q/q to 28.9%.
Looking ahead, Rackspace has provided guidance for the fourth quarter, anticipating revenues between $668 million and $680 million with an EPS ranging from -$0.03 to -$0.05. This forecast brackets the consensus of $671.9 million in revenue and an EPS of -$0.05.
The company's midpoint earnings before interest and taxes (EBIT) guidance suggests a slight increase in operating margins by approximately 10 basis points q/q.
In summary, Rackspace continues to focus on strategic priorities, including strengthening partnerships, shifting towards services, rebranding as a hybrid cloud/AI company, and optimizing its capital structure. While the Q4 revenue trajectory is not expected to change significantly, the firm's guidance indicates continued improvement in operating margins.
In other recent news, Rackspace Technology displayed strong Q3 results and provided an upbeat guidance for Q4. The company reported Q3 adjusted earnings per share of -$0.04, surpassing the analyst consensus estimate of -$0.07. Furthermore, its Q3 revenue was reported at $676 million, slightly exceeding the $675.14 million analysts had predicted.
Despite a 7.7% YoY decline in revenue, the company's Q4 outlook has garnered investor attention. Rackspace Technology projected Q4 revenue between $668-$680 million, surpassing the $671.1 million consensus, and adjusted EPS between -$0.03 and -$0.05, aligning with analysts' -$0.05 estimate. CEO Amar Maletira expressed satisfaction with the Q3 results, highlighting record bookings in the Public Cloud sector.
Meanwhile, the company anticipates Q4 revenues of $258-$264 million and $410-$416 million for its Private Cloud and Public Cloud segments, respectively. These are the latest developments for Rackspace Technology.
InvestingPro Insights
Rackspace Technology's recent performance and Evercore ISI's price target adjustment are further illuminated by real-time data from InvestingPro. The company's market capitalization stands at $646.45 million, reflecting its current market position. Despite the challenges highlighted in the earnings report, Rackspace has shown impressive stock performance, with a 120% price total return over the past year and a 40.89% return in the last six months.
InvestingPro Tips suggest that Rackspace's valuation implies a strong free cash flow yield, which could be attractive to investors looking for potential value opportunities. Additionally, five analysts have revised their earnings upwards for the upcoming period, potentially indicating some optimism about the company's future performance.
However, it's important to note that Rackspace is not currently profitable, with a negative P/E ratio of -2.07 for the last twelve months as of Q2 2024. This aligns with the article's discussion of the company's focus on improving operating margins and strategic priorities.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Rackspace Technology, providing a deeper insight into the company's financial health and market position.
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