On Wednesday, BMO Capital Markets maintained its Market Perform rating on shares of Rackspace Technology Inc . (NASDAQ:RXT) while increasing the price target to $3.50 from the previous $2.50. This adjustment follows Rackspace's recent quarterly performance, which aligned with revenue expectations and demonstrated a notable increase in margins.
The company's Private Cloud services experienced growth quarter over quarter for the first time in several years, signaling potential for revenue improvements in fiscal year 2025 compared to fiscal year 2024. Rackspace's bookings, especially in the Public Cloud division, also showed positive trends, with consecutive growth for the past three quarters.
According to BMO Capital's analysis, Rackspace's recent performance in bookings is a promising sign for the company's future revenue trajectory. However, the firm suggests that Rackspace will need to sustain this level of bookings over multiple quarters to achieve a meaningful top-line turnaround.
In light of these developments, BMO Capital has raised the target price for Rackspace's shares, reflecting a more optimistic outlook on the company's financial prospects. Despite the price target increase, the firm's overall stance on Rackspace remains unchanged at Market Perform.
In other recent news, Rackspace Technology has reported strong financial results for the third quarter of 2024, surpassing its revenue, profit, and earnings per share (EPS) guidance for the ninth consecutive quarter.
The company's GAAP revenue was $676 million and its non-GAAP operating profit was $34 million. Rackspace's Private Cloud GAAP revenue reached $258 million, while Public Cloud revenue was $418 million.
The company is expecting a 30% year-over-year revenue increase in its healthcare Private Cloud business for fiscal 2024. Rackspace's focus on healthcare and the BFSI sectors is expected to account for one-third of total revenue by fiscal 2024.
In terms of future projections, Rackspace anticipates Q4 GAAP revenue to be between $668 million and $680 million, and non-GAAP operating profit to be between $34 million and $36 million. The company also expects significant growth in the healthcare sector, with possible high double-digit growth in fiscal 2025. These are recent developments that highlight the company's ongoing success and future potential.
InvestingPro Insights
Recent data from InvestingPro adds context to BMO Capital's analysis of Rackspace Technology Inc. (NASDAQ:RXT). The company's market cap stands at $646.45 million, reflecting its current position in the tech sector. Rackspace's revenue for the last twelve months as of Q2 2024 was $2.83 billion, with a revenue growth of -8.18% over the same period, aligning with BMO's observations about the company's financial performance.
InvestingPro Tips highlight both challenges and potential opportunities for Rackspace. On the positive side, the stock has shown a significant return over the last week and a strong return over the last three months, with a 19.17% price total return in the latter period. This recent momentum could be linked to the improved bookings and margin increases noted in BMO's report.
However, InvestingPro also points out that Rackspace suffers from weak gross profit margins, which stood at 20.83% for the last twelve months as of Q2 2024. This metric underscores the importance of the company's efforts to improve margins, as mentioned in the BMO analysis.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights, with 11 more tips available for Rackspace Technology Inc.
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