Top Analyst Remains Bullish on Nutanix (NTNX), Even as Stock Plummets 34%


Among one of the biggest losers in Friday trading was cloud computing software company Nutanix (NTNX). Though the company reported better-than-expected results, it also issued worrisome guidance, which sent the stock plummeting more than 30%. Guidance calls for revenue between $290 and $300 million in the third quarter, which fell below expectations of $347.6 million; Wall Street expects EPS at a loss of $0.28 per share, while the company is calling for a $0.60 loss per share.

Even with the concerning guidance, RBC Capital analyst Matthew Hedberg is maintaining his Outperform rating on the stock, though slashes his price target by $12, to $52.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Hedberg has a yearly average return of 33.2% and an 84% success rate. Hedberg is ranked #4 out of 5,224 analysts and has an average 34.8% profit on Nutanix.

Hedberg acknowledges that “quarterly results were roughly in-line,” but immediately discusses what is important right now. He says, “guidance moves lower as management noted inadequate marketing spend for pipeline generation and slower-than-expected sales hiring.” This inadequate marketing spend has contributed to a deceleration of lead generation, which grew 75% in 2017 but fell to 35% in 2018. Hedberg says the company “felt further efficiencies from prior spend would aid pipeline build,” which prevented increase spending.

Hedberg says that “compounding [the] issue was that management couldn’t hire additional sales reps fast enough in the 1H/19 and, as a result, during Q2/19 management realized its backlog wasn’t growing fast enough and quickly reallocated additional capital back to lead generating activities.” Because of this, the analyst says “management expects to increase OpEx by $40M q/q into Q3/19 ($30M of which was run-rate spend), and we assume another $20M q/q into Q4/19.” Hedberg concedes that “it [will] likely takes a few quarters to see the benefit of new sales spend, management noted win-rates remain high, and macros remain healthy as this was a self-inflicted injury.”

Overall, Hedberg is not concerned with the company in the long-term. He says he is “clearly disappointed in the performance this quarter, [but thinks] the thought process still holds and that FY/21 targets are still in-play. As a result, his rating on the stock is not changing, but his price target has been decreased.

Prior to the earnings announcement, Wall Street was pretty upbeat about the company. TipRanks analysis of 14 analyst ratings show a consensus Moderate Buy rating, with ten analysts Buying and four recommending Hold. The average price target among these analysts stand at $52.33, representing a 52% increase (though this comes as many analysts have not updated their price targets following the plummet Friday). (Get TipRanks’ free due diligence report)