On Friday, UBS updated its outlook on Rackspace Technology Inc . (NASDAQ:RXT), raising the price target to $1.80 from $1.65 while keeping a Neutral rating on the stock. The adjustment follows Rackspace's first-quarter earnings beat and its guidance for the second quarter, which was met with mixed reactions. Despite this, the analyst from UBS expressed optimism about the company's performance over the remainder of the year, citing potential benefits from its ongoing transformation.
Rackspace's expectations include stable revenue from the second to the third quarter, with anticipated sequential growth in the fourth quarter for both its public and private cloud segments. The company has also seen strong year-over-year bookings growth in the first quarter for these areas, indicating progress toward overcoming previous customer exits and a return to business growth.
The analyst highlighted that Rackspace's positive booking trends are a testament to the effectiveness of its new services-led sales approach. This is seen as a validation of the company's strategic shift and its potential to drive future growth.
Rackspace's financial performance has also been noted, with the company reporting a comfortable beat in adjusted operating profit for the first quarter and providing guidance for the second quarter. Further improvements in operating profit are anticipated in the second half of 2024 as the company aims to capitalize on cost efficiencies.
Moreover, Rackspace's financial health appears to be strengthening, as evidenced by a recent ratings upgrade from S&P. This development, along with the company's operational advancements, is viewed positively for Rackspace's stock prospects. However, the UBS analyst advises caution, maintaining a Neutral stance due to ongoing market volatility and broader macroeconomic concerns.
InvestingPro Insights
In light of the recent UBS outlook update on Rackspace Technology Inc. (NASDAQ:RXT), InvestingPro provides additional context that could be crucial for investors. Rackspace has experienced a significant price increase over the last six months, with a 55.56% uptick, and it has maintained strong returns over the last year at 64.02%. Despite these impressive returns, InvestingPro Tips suggest caution as the stock is currently in overbought territory, and analysts have revised their earnings downwards for the upcoming period. Additionally, the company has not been profitable over the last twelve months, and it is not expected to be profitable this year.
From a financial standpoint, Rackspace's market cap stands at $438.31M, with a negative P/E ratio, reflecting its current lack of profitability. The revenue for the last twelve months as of Q4 2023 was $2.957B, although it has seen a decline of 5.29% over that period. The gross profit margin at 21.93% indicates potential weaknesses in profitability, which is further supported by an operating income margin of -1.86%.
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