The firm said it lowered its rating on the managed cloud company based on a valuation call.
D.A. Davidson said it expects the company to show "steady top line and EBITDA growth over the next several years."
The firm also said that once the company stopped looking for "strategic alternatives," its stock "rebounded significantly."
Now that Rackspace has moved away from the competitive cloud market, D.A. Davidson said it's ready to focus on "its core competency of 'fanatical service'."
Shares of Rackspace are lower by 2.81% to $45.95 at the start of trading on Friday morning.
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 find that the company's return on equity has been disappointing."