Bullish indicating open at $55-$60, IPO prices at $37
On Monday, RBC Capital Markets adjusted its outlook on Rackspace Technology Inc . (NASDAQ:RXT), reducing the price target from $3.00 to $2.00, while retaining a Sector Perform rating on the stock. The stock currently trades at $1.38, having declined over 56% in the past six months. According to InvestingPro data, analyst price targets for the stock range from $1.00 to $3.25, reflecting mixed sentiment about the company’s prospects. The adjustment follows Rackspace’s recent earnings report, which showed the company surpassing expectations for both revenue and earnings, marking its 11th consecutive quarter of meeting or surpassing guidance.
The company’s total bookings for the quarter increased by 9% year-over-year, indicating a positive trend in its business operations. Despite generating $2.71 billion in revenue over the last twelve months, the company faces challenges with a weak gross profit margin of 20.2%. RBC Capital’s analyst acknowledged the company’s ongoing efforts, stating, "Turnaround momentum continues; Rackspace reported solid results with beats across both the top and bottom line."
In light of the earnings report, RBC Capital has revised its financial forecasts for Rackspace. The firm’s updated fiscal year 2025 (FY25) revenue, adjusted EBITDA, and adjusted EPS estimates now stand at $2.665 billion, $243 million, and ($0.17) respectively, adjusted from the previous $2.656 billion, $258 million, and ($0.03). For fiscal year 2026 (FY26), the estimates have been modified to $2.733 billion in revenue, $288 million in adjusted EBITDA, and $0.04 in adjusted EPS, down from an earlier projection of $2.734 billion, $311 million, and $0.06 respectively.
The revision of the price target to $2.00 is based on 11 times the calendar year 2026 estimated enterprise value to EBITDA (EV/EBITDA), which remains constant from the previous valuation target. Currently, the company trades at an EV/EBITDA multiple of 17.78x. The analyst cited ongoing macroeconomic volatility as a factor in the decision to adjust the price target, while also noting the company’s transition towards a more stable margin business. The new target aligns Rackspace’s valuation with that of its industry peers, reflecting the company’s steady progress in its operational turnaround. For deeper insights into Rackspace’s valuation and financial health metrics, investors can access the comprehensive research report available on InvestingPro, which includes additional analysis and forward-looking indicators.
In other recent news, Rackspace Technology Inc. reported its Q1 2025 earnings, revealing a non-GAAP loss per share of $0.06, which was better than the forecasted loss of $0.0762. The company also exceeded revenue expectations with $665 million, surpassing the anticipated $658.68 million. This financial performance has been well received by investors, as evidenced by the stock’s positive aftermarket reaction. Rackspace has made a strategic shift towards a services-led business model, focusing on enterprise and mid-market segments, resulting in an 83% increase in non-GAAP operating profit to $26 million. The company continues to emphasize its pivot to services, data, and security services, aiming to capitalize on opportunities within regulated industries. Additionally, Rackspace announced a strategic partnership with Rubrik, launching a fully managed Cyber Recovery Cloud, expected to drive revenue starting in 2025. The company’s guidance for Q2 2025 anticipates revenue between $653 million and $665 million. Analysts from Evercore and Barclays (LON:BARC) have shown interest in Rackspace’s strategic moves and market positioning, with discussions highlighting strong execution in sales and ongoing opportunities in regulated industries.
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