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Rackspace Falls but Analysts Remain Bullish on Potential

Rackspace topped analysts' fourth-quarter estimates, but soft guidance pushed the stock lower.
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Shares of Rackspace Technology  (RXT) - Get Rackspace Technology, Inc. Report dropped on Friday despite the cloud-services provider reporting fourth-quarter results that topped estimates. 

After Thursday's closing bell the San Antonio company reported a loss of $64 million, or 32 cents a share, widened from a loss of $47 million, or 28 cents, in the year-earlier period. 

Adjusted earnings of 26 cents a share on revenue of $716 million exceeded analyst expectations of earnings of 23 cents a share on revenue of $705 million. 

Rackspace "is extremely well positioned to capitalize on the tectonic shift to the cloud," Chief Executive Kevin Jones said in a statement. "We have the people, partners, expertise and automation to help customers of all sizes optimize their multicloud journey." 

But the company's 2021 earnings guidance, 95 cents to $1.05 a share, was short of analyst estimates of $1.11 a share, according to Yahoo Finance. 

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Rackspace shares at last check fell 11% to $22.11. 

BMO's Keith Bachman expects 2021 margins to shrink and free-cash-flow estimates to start falling. The results were "far from perfect," the analyst said, according to Bloomberg.

But Bachman still remains encouraged by the stock's long-term potential. He raised his price target to $26 from $24 a share and maintained an outperform rating. 

Evercore analyst Amit Daryanani said "[we] understand investor angst around the lack of operating leverage in calendar year 2021." 

He maintained his outperform rating and $26 price target, according to Bloomberg. Rackspace is well-positioned to capitalize on the shift to multicloud over the next several years, according to Daryanani.