Nutanix (NTNX) shares have been hit by multiple rounds of bad news recently. First, investors weren’t impressed with the hyperconverged appliance maker’s latest earnings report, sending shares tumbling nearly 7%. Then, the earnings survivors ran for the hills after hearing that Alphabet’s Google Cloud division could seek to play a more competitive role in the space. Specifically, a media article indicated that Google Cloud services could soon be reaching into private data centers via custom computing devices that combine server, storage, and networking functions.
Has Wall Street gone a bit overboard punishing Nutanix? Susquehanna analyst Mehdi Hosseini doesn’t think so. The analyst downgraded Nutanix shares today, from Neutral to Negative, while slashing the price target to $33.00 (from $55.00), which implies a potential downside of 24% from where the stock is currently trading. (To watch Hosseini’s track record, click here)
In reaction, NTNX is down nearly 8% in early trading Monday.
Hosseini commented, “NTNX has done a good job transforming its model/narrative and driving strong growth. Multiple expansion of the past year has reflected this, though BE goalpost is pushed out. In our view, the next phase of transformation (vertical integration to become a second source to VMW) will take longer than expected, while the more opex/more growth approach may not yield enough growth acceleration to become profitable anytime soon. With competition rising, past partners (Dell/Lenovo) embracing competitors (VMW/NTAP) and cloud players reluctant to relinquish influence, the path to BE is further pushed out. We praise NTNX for changing course since the IPO, but we believe fundamentals will prove incrementally challenging and we find it prudent to emerge from our comfortable Neutral rating and downgrade to Negative with a $33 PT (4x CY20 EV/sales). We’re reducing revenue estimates and pushing out BE to FY22. Our PT multiple reflects a discount to peers (6x) given our pushout of BE, while CY20 revenue growth (~20%) is relatively in-line with peers.”
Most of the Street is far more confident than Hosseini’s bearish stance, with TipRanks analytics showcasing NTNX as a Strong Buy. Based on 12 analysts polled in the last 3 months, 10 rate a Buy on Nutanix stock while 1 maintains a Hold, along with Hosseini who rates the stock a Sell. The 12-month average price target stands at $64.73, marking a nearly 50% upside from where the stock is currently trading. (See NTNX’s price targets and analyst ratings on TipRanks)