Rackspace Shares Up Stabilizing Business Trends

PHILADELPHIA (AP) — Shares of Rackspace Hosting Inc. rose Thursday after an analyst upgraded the stock as business from small to medium-sized companies seems to be stabilizing.

Goldman Sachs analyst Winston Len raised Rackspace to "Buy" from "Neutral." He also increased his 12-month price target to $23 from $16.

He said Rackspace's "value" pricing and reputation for customer service should keep it ahead of competitors. Rackspace's computers run e-mail systems and other software services for corporate clients — a service called cloud and enterprise hosting.

Rackspace has continued to grow in spite of a tough economy due to strength in hosting services, offsetting softness in business from smaller companies. But Len said recent surveys point to a stabilization among these customers, which bodes well for Rackspace.

He raised his revenue forecast for 2010 and 2011 to $806.3 million from $803.6 million, and to $1.03 billion from $1.02 billion, respectively.

Len now expects Rackspace to earn 43 cents per share in 2010, up a nickel, and 65 cents per share in 2011, up from 56 cents.

Shares of Rackspace were up 68 cents, or 3.9 percent, to $18.25 in afternoon trading.