Rackspace: Morgan Stanley, Pacific Crest Launch Coverage; Both Bullish

Rackspace (RAX) shares are trading higher this morning as both Morgan Stanley analyst Simon Flannery and Pacific Crest analyst Chad Bartley launched coverage of the stock this morning with bullish notes.

• Flannery starts with an Overweight rating and $20 price target; the stock closed yesterday at $17.31. He writes that the company is “one of the best-positioned managed infrastructure providers…with strong recurring revenue characteristics and solid long-term growth potential.” He contends the company should see greater leverage to an early cycle IT spending recovery than other names he covers. He sees RAX earning 25 cents a share this year, 42 cents next year and 60 cents in 2011.


• Bartley starts with an Outperform rating and $22 target. He writes that “after several challenging quarters due the economy, we expect fundamentals and trends to re-accelerate in Q4 and 2010.” He contends that RAX is “a strong play on cloud-services growth.” Bartley sees EPS of 23 cents this year, and 34 cents next year.

RAX today is up 79 cents, or 4.6%, to $18.10.