Rackspace’s 4Q Sales Outperform On Cloud Demand; Guidance Disappoints

Rackspace Technology delivered better-than-expected sales and earnings in the fourth quarter as the technology solutions provider saw an increase in demand for its multicloud services, apps and cross platform segments.

Meanwhile, shares of Rackspace (RXT) declined 3.5% in Monday’s pre-market trading after tanking 16.1% on Feb. 19, as investors weren’t impressed with the company’s 2021 profit outlook. Rackspace sees revenues land between $2.9 billion to $3.1 billion and earnings per share to be in the range of $0.95 to $1.05. Analysts had been looking for earnings of $1.11 a share.

For the fourth quarter, the company posted EPS of $0.26, which came in ahead of analysts’ expectations of $0.23.

Revenue increased 14% year-on-year to $716 million topping analysts’ estimates of $701.79 million. Revenue growth was attributable to the positive impact from the Onica Holdings acquisition in November 2019, the addition of new customers and higher customer spending.

For fiscal 2020, the company generated sales of $2.71 billion, up from the $2.44 billion posted in 2019. Diluted earnings per share came in at $0.83, an increase of 118% from the comparable year-ago period.

Rackspace CEO Kevin Jones said, “Our success in energizing sales bookings in 2020 continues to drive-double digit revenue growth. We made great progress towards becoming the leading pure play multicloud services and solutions company and setthe stage for years of incremental revenue growth, earnings growth and enhancement of shareholder value.” (See Rackspace Technology stock analysis on TipRanks)

On Feb. 19, BMO Capital analyst Keith Bachman raised Rackspace’s price target to $26 (24.2% upside potential) from $24 and reiterated a Buy rating.

The rest of the Street has a Strong Buy consensus rating on the stock based on 5 unanimous Buys. The average analyst price target of $27.20 implies about 30% upside from current levels.

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