Stock Analysis

Rackspace Technology, Inc. (NASDAQ:RXT) Just Released Its Yearly Results And Analysts Are Updating Their Estimates

  •  Updated
NasdaqGS:RXT
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There's been a notable change in appetite for Rackspace Technology, Inc. (NASDAQ:RXT) shares in the week since its yearly report, with the stock down 16% to US$20.93. Revenues were in line with expectations, at US$2.7b, while statutory losses ballooned to US$1.37 per share. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Rackspace Technology

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NasdaqGS:RXT Earnings and Revenue Growth February 22nd 2021

Following the latest results, Rackspace Technology's seven analysts are now forecasting revenues of US$3.02b in 2021. This would be a notable 12% improvement in sales compared to the last 12 months. The loss per share is expected to greatly reduce in the near future, narrowing 87% to US$0.18. Before this earnings announcement, the analysts had been modelling revenues of US$2.94b and losses of US$0.043 per share in 2021. While this year's revenue estimates increased, there was also a massive increase in loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.

There was no major change to the consensus price target of US$27.00, with growing revenues seemingly enough to offset the concern of growing losses. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Rackspace Technology, with the most bullish analyst valuing it at US$29.00 and the most bearish at US$25.00 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's clear from the latest estimates that Rackspace Technology's rate of growth is expected to accelerate meaningfully, with the forecast 12% revenue growth noticeably faster than its historical growth of 6.2%p.a. over the past three years. Compare this with other companies in the same industry, which are forecast to see revenue growth of 15% next year. It seems obvious that, while the future growth outlook is brighter than the recent past, Rackspace Technology is expected to grow slower than the wider industry.

The Bottom Line

The most important thing to take away is that the analysts increased their loss per share estimates for next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Rackspace Technology going out to 2025, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Rackspace Technology that you need to be mindful of.

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