Story updated at 9:40 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Barclays initiated coverage of Rackspace Hosting (RAX) with an "outperform" rating on Wednesday.

Shares of Rackspace were gaining 0.9% o $43.09 in morning trading.

The analyst firm set a price target of $52 for the IT services company. Barclays analysts Amir Rozwadowski and Sandeep Gupta said Rackspace's cloud, hosting, and data center segments are "fundamentally attractive," citing underlying data traffic tends, declining, computer costs, and the increasing complexity of the software ecosystems as drivers for the segments.

The analysts wrote, "While businesses increasingly look to deploy cloud-based IT infrastructure (+35% YoY market growth through 2018E), rapidly evolving IT ecosystems add to the complexity of embracing an outsourced business model. Particularly for non-technology companies, this complexity can be a hindrance in moving to the cloud, thereby making Rackspace's managed resource suite an attractive solution."

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Separately, TheStreet Ratings team rates RACKSPACE HOSTING INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate RACKSPACE HOSTING INC (RAX) a HOLD. 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. The company's strengths can be seen in multiple areas, such as its increase in net income, robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and relatively poor performance when compared with the S&P 500 during the past year."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 57.8% when compared to the same quarter one year prior, rising from $16.31 million to $25.74 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 27.8%. Since the same quarter one year prior, revenues rose by 18.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has slightly increased to $125.43 million or 9.49% when compared to the same quarter last year. Despite an increase in cash flow, RACKSPACE HOSTING INC's cash flow growth rate is still lower than the industry average growth rate of 25.51%.
  • In its most recent trading session, RAX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet Software & Services industry and the overall market, RACKSPACE HOSTING INC's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: RAX Ratings Report

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