Rackspace (RAX) Falls Despite Earnings Beat, Strong Guidance

NEW YORK (TheStreet) -- Rackspace Hosting  (RAX) fell Tuesday despite the IT company's second-quarter earnings report and third-quarter guidance that beat analysts' expectations.

The company reported net income stayed flat year-over-year at $22.5 million, or 16 cents a share. Revenue increased 17% year-over-year to $441.1 million. Analysts polled by Thomson Reuters had expected earnings of 16 cents a share on revenue of $436.9 million.

Rackspace issued third-quarter revenue guidance in the range of $454 million to $461 million, which beat the consensus estimate of $454.2 million.

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Rackspace said in May it had received some interest from multiple entities about a possible acquisition or merger and hired Morgan Stanley  (MS) to review its options, but the company has remained silent on this subject since then and did not offer any comments in its second-quarter report.

The stock was down 7.36% to $29 at 11:41 a.m. More than 6.7 million shares had changed hands, compared to the average volume of 3,648,480.

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 robust revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

You can view the full analysis from the report here: RAX Ratings Report

RAX Chart RAX data by YCharts

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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