Rakers is basing his Nutanix bull thesis on four factors, he said:
- The deepening of the company's leadership position in HCI.
- Large-deal momentum.
- The company's strategic vision and execution.
- Attractive relative valuation.
The valuation will become even more compelling as Nutanix executes on an expanding software-only delivery model, with ASC 606 revenue recognition, Rakers said. Wells Fargo is positive on Nutanix' addressable market opportunity. The firm IDC estimates the HCI market will grow from $2.32 billion in 2016 to $7.64 billion by 2021. "This reflects an increase from 3 percent of on-premise spend on x86 servers and external storage in 2016 to approximately 10 percent [at the end of] 2021," Rakers said.
See also: Who's Impressed With Nutanix Following NEXT Conference?
Nutanix's top-25 customer repeat purchase multiple versus initial purchases has consistently expanded from 14.1x a year ago to 19.4x in July 2017, according to Wells Fargo. The firm views Nutanix' increasing software-only contributions as a positive, averaging 17 percent of total bookings for the rolling four-month quarters ending with the fourth quarter of fiscal 2017. Wells Fargo projects a revenue contribution from software in the mid-to-high 20 percent range in the third quarter of 2017 after the ASC 606 accounting standard is initiated. Microsoft Corporation (NASDAQ: MSFT)'s Azure stack and VMware, Inc. (NYSE: VMW)'s Cloud for AWS should be viewed as Nutanix' "important long-term competitors," Rakers said. .
Wells Fargo: Nutanix Valuation Could Become 'Even More Compelling'
Shares of Nutanix Inc. NTNX, +2.86% ran up 5.2% in morning trade Monday, putting it on track to close at an eight-month high, after Raymond James analyst Simon Leopold turned bullish on the enterprise-computing company for the first time, citing favorable checks that suggest continued sales momentum and competitive position. Leopold raised his rating to outperform, after being at market perform since he started covering the company in October 2016, about a month after the IPO. He initiated a stock price target of $32, which is 11% above current levels. Leopold said recent checks into its current business were "favorable," and said the company appears to benefit from a "conflicting pitch" by competitors. "Dell, EMC and VMware do not present a unified pitch, and customers are gravitating to Nutanix (iroincally, often promoted by Dell)," Leopold wrote in a note to clients. He expects Nutanix to beat revenue expectations when it reports fiscal first-quarter results on Nov. 28.