On Thursday, KeyBanc maintained its Overweight rating on Nutanix (NASDAQ:NTNX) and increased the price target to $79.00 from the previous $69.00 for the shares. The adjustment follows Nutanix's financial results for the third quarter of fiscal year 2024, which surpassed expectations.
Additionally, the outlook for the fourth quarter indicated a decrease in new and expansion business, attributed to a growing proportion of large-scale deals in the pipeline.
Nutanix's management highlighted a significant rise in high-value deals, with a more than 30% year-over-year increase in $1 million+ Annual Contract Value (ACV) deals in the last three quarters of FY24.
Moreover, there was a more than 50% increase in the dollar amount of these deals over the same period. These larger deals are becoming more strategic, with clients leveraging Nutanix's capabilities to capitalize on trends in hybrid cloud, disaster recovery, and artificial intelligence.
The company's Free Cash Flow (FCF) guidance for FY24 was revised upward by $100 million at the midpoint, compared to the previous guidance of $430 million. This increase is partly due to one-time payments of $30 million from partners and the impact of larger deals.
However, this has been partially offset by $111 million due to a transition in the second quarter of FY24 to funding employee Restricted Stock Unit (RSU) withholding taxes with cash rather than the previous method of selling shares on the open market (sell-to-cover), which provided a boost to FCF generation.
With strong growth in FCF, a robust pipeline, and accelerating Available-to-Renew (ATR) pool expected in FY25, KeyBanc raised the price target for Nutanix.
The new target is based on a multiple of 10.5 times the company's enterprise value to projected CY24 sales, which aligns with peers that follow the Rule of 40 for software companies.
KeyBanc models that Nutanix will exceed the Rule of 40 threshold, which combines revenue growth and FCF margin, in FY25 and FY26.
InvestingPro Insights
The recent performance and strategic moves by Nutanix (NASDAQ:NTNX) have caught the eye of investors and analysts alike. KeyBanc's optimism is reflected in the substantial increase in their price target, and this sentiment is echoed by some of the metrics and tips from InvestingPro. With a remarkable gross profit margin of 83.85% in the last twelve months as of Q2 2024, Nutanix demonstrates its ability to maintain profitability on its services and products. Additionally, the company's liquid assets surpass its short-term obligations, indicating a sound liquidity position that could support its operations and investment in growth opportunities.
InvestingPro Tips highlight that Nutanix is expected to see net income growth this year, which aligns with the positive outlook presented by the management's upward revision of Free Cash Flow guidance. Moreover, the company is trading near its 52-week high, reflecting investor confidence and a large price uptick over the last six months. While the company has not been profitable over the last twelve months, analysts predict that it will become profitable this year, which could be a pivotal point for the company's financial trajectory.
For investors looking to delve deeper into Nutanix's performance and potential, InvestingPro offers additional tips that provide a more comprehensive analysis. There are 13 more InvestingPro Tips available, which can offer further insights into the company's valuation, market performance, and future prospects. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to these valuable tips.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.