NEW YORK (TheStreet) -- Shares of Rackspace Hosting Inc (RAX) are slumping, down 4.2% to $36.91 in early-market trading, after the cloud computing company was downgraded to "neutral" from "overweight" at JPMorgan Chase (JPM) .
The firm cited the company's risk/reward balance and noted the potential upside as high as $50 if a sale to CenturyLink Inc (CTL) happens, versus a fall back to the pre-sale level around $30 if nothing happens.
Analysts at JPMorgan Chase kept its $37 price target.
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 increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 17.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Although RAX's debt-to-equity ratio of 0.07 is very low, it is currently higher than that of the industry average. To add to this, RAX has a quick ratio of 1.69, which demonstrates the ability of the company to cover short-term liquidity needs.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Internet Software & Services industry average. The net income increased by 0.4% when compared to the same quarter one year prior, going from $22.37 million to $22.45 million.
- RAX has underperformed the S&P 500 Index, declining 21.35% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- 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
EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he and Stephanie Link think could be potentially HUGE winners. Click here to see the holdings for FREE