Rackspace Hosting (RAX) Stock Sinks on Downgrade, Quarterly Results

NEW YORK (TheStreet) -- Shares of Rackspace Hosting (RAX) were falling 14.6% to $45.36 Tuesday morning after a downgrade from Morgan Stanley following the company's poor first quarter results and light guidance.

Morgan Stanley downgraded the server hosting company to "equal-weight" from "overweight" on Tuesday, lowering its price target for the company to $49 from $55. Morgan Stanley analysts expect Rackspace to see delays in enterprise booking and significant customer churn which could impact revenue growth in 2015.

"We believe the stock is fairly valued at current levels after a strong run in recent quarters," the analysts wrote. "Rackspace is well positioned for the longer term but appears to face some near term headwinds, in our view."

For the first quarter Rackspace reported revenue of $480.2 million, up 14.1% from the year-ago quarter, but below analysts' estimates of $481.57 million. The company reported earnings of 20 cents a share for the quarter, in line with analysts' estimates for the quarter.

The company said it expects revenue to grow by 1.5% to 2.5% on a constant currency basis in the second quarter. The company reported earnings of $441.1 million in the first quarter of 2014. Analysts expect Rackspace to report revenue of $502.11 million for the second quarter.

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

"We rate RACKSPACE HOSTING INC (RAX) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. 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, impressive record of earnings per share growth, compelling growth in net income and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

If you liked this article you might like

Rackspace Confirms Departure of COO Roenigk

Largest U.S. Banks Bullish About M&A Despite Lackluster 2016

F5 Networks May Catch Activist Investor Attention Amid Sector Consolidation

Tech Deals Propel Wachtell, Wilson Sonsini to Big Third Quarter

Oracle Continues Its All-Out Push Into the Cloud, but Amazon and Others Aren't Standing Still