Why Rackspace Hosting, Inc. Will Bounce Back to $45

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Rackspace Hosting  (NYSE: RAX  ) soared 6% today after Morgan Stanley upgraded the cloud computing services specialist from equal weight to overweight.

So what: Along with the upgrade, analyst Keith Weiss planted a price target of $45 on the stock, representing about 40% worth of upside to yesterday's close. So while momentum traders might be turned off by the stock's sharp pullback over the past six months, Weiss' call could reflect a growing sense on Wall Street that Rackspace's growth prospects are becoming too cheap to pass up.

Now what: Morgan expects Rackspace's top line to grow 17% in 2014. "After a challenging year, we saw Rackspace showing improved bookings momentum exiting 2013, a trend we expect to continue in 2014," wrote Weiss in a note to investors. "The public cloud space is seeing aggressive competition from AWS and others, but we believe that a combination of strong industry growth and differentiated service offerings should allow RAX to deliver profitable growth over time." When you couple those tailwinds with Rackspace's cheapish EV/EBITDA of 10, it's tough to disagree with Morgan's upgrade. 

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Read/Post Comments (4) | Recommend This Article (1)

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  • Report this Comment On March 25, 2014, at 3:08 PM, DanKay wrote:

    JPM has a price target of 57 with an overweight rating.

  • Report this Comment On March 27, 2014, at 2:27 PM, cruzn59 wrote:

    I don't see a lot of comments. Not sure if readers don't take the story seriously because of the timing with regards to recent events, or whether it will hit 45 after it hits 25, or if the ad at the bottom of the article was longer than the article turns readers away. Just looking for facts and direction.

  • Report this Comment On March 30, 2014, at 8:08 PM, robert101 wrote:

    I should add a new review for Rackspace Hosting on tophostingreviews.co

  • Report this Comment On May 07, 2014, at 5:46 PM, VickieDayton wrote:

    RAX closed at $26.91 today, down from $32.72 on March 24. Just saying.

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