Tigress Financial Partners' CIO Explains Why They Downgraded Rackspace Hosting

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In a report published Friday,
Tigress Financial Partners
' Chief Investment Officer Ivan Feinseth downgraded shares of
Rackspace Hosting, Inc.RAX
from Strong Buy to Buy.

Rackspace Hosting Builds Niche

"RAX is making a niche for itself in the hybrid
cloud
space; we think the company will have success bringing more enterprise customers on to its platform, which will be an important driver of economic profit growth and shareholder returns although we note RAX's key performance metrics have declined slightly," he explains.

Sales Growth Lower

The report highlights that sales growth decelerated year-over-year from 17.2 percent to 16.92 percent in 2014. EBITDAR and NOPAT margins also felt pressure from "increased competition from
Amazon
Web Services (AMZN-US, Buy rated) and
Google
(GOOGL-US, Strong Buy Rated)."
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EP Higher

On the other hand, Economic Profit rose from (negative $29.5 million) in 2013 to (negative $2.5 million) last year, "driving Economic Profit Momentum on Sales (ΔEP/Sales) higher. RAX's performance metrics currently rank in the 81st percentile of out our 2,220 company universe."

Related Link: JMP Securities Comments On Meeting With Rackspace Hosting

Overview

Feinseth continued to say that, while the firm still believes that Rackspace is "uniquely positioned to meet the needs of businesses looking for more hands-on cloud services," the substantial ascent in the share price makes the valuation less attractive, as it stands on higher end of the range.
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Posted In: Analyst ColorNewsDowngradesAnalyst RatingsTechIvan FeinsethTigress Financial Partners
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