Nutanix Turnaround Delayed By Demand Slowdown, Morgan Stanley Says In Downgrade

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While poor results from storage companies indicate a market slowdown, recent Morgan Stanley channel checks highlight stiffening competition.

Given this backdrop, the turnaround at Nutanix Inc NTNX could be delayed by two to three quarters, the sell-side firm said in a Tuesday downgrade note. 

The Analyst

Katy Huberty downgraded Nutanix from Overweight to Equal-Weight and reduced the price target from $53 to $37.

The Thesis

Although Nutanix's Essentials and Enterprise software offerings are differentiated from its storage peers and face a clearer TAM expansion opportunity, the cyclical slowdown of demand and competition from Dell Technologies Inc DELL suggests a full recovery could take several quarters, Huberty said in the downgrade note. (See her track record here.) 

Enterprise hardware peers Pure Storage Inc PSTG, NetApp Inc. NTAP and Hewlett Packard Enterprise Co HPE missed on April quarter revenue, while their full-year revenue estimates have been lowered by 2-5 percent, the analyst said. This suggests risk to Nutanix's outlook, she said. 

Following a channel call hosted by Morgan Stanley, Huberty said competition seems to be a bigger issue than was earlier believed, adding that rising competition and slowing market growth are concerns.

Morgan Stanley reduced its calendar 2019 revenue estimate for Nutanix from $1.47 billion to $1.414 billion to reflect normal July quarter seasonality.

Price Action

Nutanix shares were down 10.6 percent at $31.41 at the close Tuesday. 

Related Links:

Jefferies: Reward Potential In Nutanix Outweighs The Risk

Analysts React To Nutanix's Broad Pipeline, Target Delay

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Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsKaty HubertyMorgan Stanley
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