After Monday's market close, the Windcrest, TX-based cloud computing company reported earnings of 38 cents per share, topping analysts' estimates of 22 cents per share. Revenues rose by 7% year-over-year to $524 million, above Wall Street's expectations of $521.19 million.
In response, Pacific Crest raised its earnings estimates for the company's current year to $1.15 from $1.08 per share, while Wall Street is looking for $1.07 per share.
However, the firm has two main concerns about the company: "the stability of RAX's legacy business" and "growth in managed cloud business."
Pacific Crest said it has little confidence in Rackspace's legacy business, and that it is probably "weaker than it would like you to believe."
"The company cited unexpected churn due to the Brexit vote and continues to give little information regarding its new managed cloud business," Pacific Crest explained.
The firm addressed M&A speculation by saying, "RAX is likely an attractive M&A candidate for private equity investors due to its FCF generation during this transitional stage."
The firm has a "sector weight" rating on the stock.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
TheStreet Ratings team rates Rackspace Hosting as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.
You can view the full analysis from the report here: RAX