| Tech Stock News and Analysis |
|
|
| Friday, July 28, 2006 |
Rackable Systems Shares Plunge on Weak Outlook, Which Prompts Analyst Downgrade
- Rackable Systems Inc. shares suffered Friday as investors rushed to the exit after the maker of rack-mounted computer servers issued weak guidance based on expectations of a declining market and increased pricing pressure.
Shares plunged $13.94, or 40 percent, to $20.97 in afternoon trading, on the Nasdaq. Trading volume surged to 19.3 million shares, well above a daily trading average of 1.4 million shares. The stock has traded in a 52-week range between $12.19 to $56 and is up 23 percent since the beginning of the year to a Thursday close at $34.91.
Piper Jaffray & Co. analyst Troy D. Jensen downgraded the stock to "Market Perform" from "Outperform" based on the company's expectation of slowed growth and increased operating expenses. He also lowered his target price to $27 from $44.
"We believe numerous challenges confront Rackable including pricing pressures, slowing macroeconomic environment, product differentiation sustainability, and diversification into new vertical markets," the analyst wrote.
Rackable Systems said its second-quarter profit more than quadrupled on surging revenue due to higher sales of storage products and interest income.
Jensen of Piper Jaffray noted that the second quarter was marked by significant sales to new customers and growth in its storage product and scale out series servers, which offset revenue declines from Rackable's core servers.
He said pricing pressure for certain components could reduce gross margins ahead, but said the company should be able to sustain long-term growth.
RBC Capital Markets analyst Thomas Curlin reiterated an "Outperform" rating in a client note but reduced his target price to $40 from $60.
Pacific Crest analyst Brent Bracelin also reaffirmed an "Outperform" rating and lowered his target price to $57 from $40. He said the company's guidance appears conservative.
In a conference call Thursday, the company said it expects full-year earnings between 98 cents to $1.02 per share, excluding items, on revenue between $345 million to $355 million. Wall Street projects 96 cents per share on $345.1 million in revenue. |
|
|
|
|
| Previous Post |
|
| Archives |
|
| Links |
|
| Powered by |
 |
|
