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Why Rackspace Technology Stock Popped Today

By Evan Niu, CFA - Jan 26, 2021 at 1:17PM

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The multicloud service provider got a bullish initiation from Wall Street.

What happened

Shares of Rackspace Technology (RXT -5.25%) have popped today, up by 12% as of 12:30 p.m. EST, after the Oppenheimer initiated coverage on the stock with an outperform rating alongside a price target of $28, which represents over 40% upside from yesterday's close. The company separately said that it was refinancing some debt.

So what

Analyst Timothy Horan is bullish on Rackspace as a pure-play way to invest in enterprise public cloud adoption. The technology specialist offers a multicloud service that supports all three of the major public cloud infrastructure providers. Companies need to shift to cloud-native operations or risk major disruptions to their businesses, in the analyst's view. That process can be complex and expensive, but Rackspace helps provide guidance to enterprise customers.

Inside a Rackspace security operations center

Image source: Rackspace Technology.

"Rackspace provides standardized but customizable software based services to move applications to and then manage them on the cloud," Horan wrote in a research note to investors. "This automated, neutral software platform has been built over 20 years and can now support the three major public cloud providers as well as private cloud and managed services."

Now what

In a regulatory filing, Rackspace said it plans to commence a new $2.2 billion secured term loan facility. The company intends to use the proceeds to pay down an existing term loan facility.

Horan believes that Rackspace is enjoying momentum with bookings growth heading into 2021, which may position it to beat Wall Street's current revenue estimates. The company is scheduled to report fourth-quarter earnings on Feb. 18.

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