Rackspace stock target cut to $3, maintains Outperform rating

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On Wednesday, Rackspace Technology Inc . (NASDAQ: NASDAQ:) experienced a revision in their financial outlook as an analyst from Raymond James adjusted the company’s price target. The new target is set at $3.00, a decrease from the previous $3.50, while the Outperform rating remains unchanged.

The adjustment comes as Rackspace trades at approximately 8 times its estimated 2024 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio. This valuation is in contrast to the broader cloud and managed services provider group, which averages around 11.5 times the same metric.

The analyst noted that the current valuation reflects a suitable discount for Rackspace, acknowledging the company’s ongoing efforts to rebuild credibility.

Rackspace’s recent success in bookings has been slower than expected to translate into revenue, which has contributed to the decision to lower the price target.

This slower conversion rate, coupled with several years of declining results, has influenced the market capitalization and stock liquidity, potentially leading to a more extended period before the price target is realized.

The analyst from Raymond James suggests that achieving the revised price target of $3.00 for Rackspace could surpass the twelve-month mark. In addition, they anticipate that the path to this target may encounter additional volatility. Despite these challenges, the firm maintains that the Outperform rating is appropriate for Rackspace at this juncture.

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