Analysts Expect Rackspace To Come Up Short

| About: Rackspace Hosting, (RAX)

Rackspace Hosting Inc. (NYSE:RAX) is set to report FQ1 2014 earnings after the market closes on Monday, February 10th. Rackspace is an American IT hosting company which provides hybrid cloud solutions to clients which allow workloads to be run on public cloud, private cloud, dedicated servers, or a combination of platforms. Analysts across the board are expecting a significant increase in the demand for cloud services. Many large tech companies such as IBM (NYSE:IBM), who recently committed over $1billion, are making significant investments to the cloud space. While the cloud space may be an area of growth in the near future for Rackspace, investors are not expecting this quarter’s report to be so hot.

The information below is derived from data submitted to the platform by a set of Buy Side and Independent analyst contributors. image

(Click Here to see All Estimates for Rackspace Hosting)

The current Wall Street consensus expectation is for RAX to report 14c EPS and $404.86M revenue while the current consensus from Buy Side and Independent contributing analysts is 13c EPS and $402.51M revenue. This quarter the buy-side, as represented by the community, is expecting RAX to miss the Wall Street consensus on both profit and revenue by a small margin.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential compared to previous quarters.image

The distribution of estimates published by analysts on the platform range from 12c to 14c EPS and $392.86M to $405.86M in revenues. This quarter we’re seeing a smaller distribution of estimates compared to other quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.image

Throughout the quarter, the EPS estimate from Wall Street decreased from 16c to 14c while the Estimize consensus remained flat at 13c. Over the same time period, Wall Street raised its revenue expectation from $401.63M to $404.86M, while the Estimize forecast dropped from $404.64M to $402.51M. Timeliness is correlated with accuracy and Wall Street and Estimize have flipped positions in forecasting RAX’s revenue.image

The analyst with the highest estimate confidence rating this quarter is jshoe who projects 12c EPS and $405.86M in revenue. In the Winter 2014 season jshoe rated as the 30th best analyst and is ranked 52nd overall among over 3,800 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, jshoe is expecting Rackspace Hosting to beat the Street on revenue but jshoe also agrees with the Estimize community that RAX will be short on profit.

While RAX may be well positioned to capitalize on the expected expansion into cloud services, analysts are not expecting such a great quarter this time around. Contributing analysts on the platform are expecting Rackspace Hosting to miss the Wall Street consensus on both EPS and revenue.

Disclosure: No positions.