Nutanix (NTNX Quick QuoteNTNX ) shares jumped 24.6% on Friday after the Wall Street Journal reported that the company is exploring its sale after receiving a takeover interest.
Citing sources familiar with the matter, the WSJ stated that the company is likely to aim at private equity and strategic buyers who are willing to pay a significant premium over its current valuation, which is around $5 billion. However, the deal stands uncertain amid the ongoing broader market sell-off in the United States.
Nutanix is considered a pioneer of the hyper-converged infrastructure (“HCI”) market, which is projected to grow rapidly in the long term. Gartner recognized the software maker as a 2022 Gartner Peer Insights Customers’ Choice vendor for HCI for the fourth time.
The strong adoption of Nutanix products and a high customer satisfaction rate are helping the company to expand its customer base. The company’s built-in hypervisor has been gaining significant traction as customers continue to select it as a low-cost alternative to other vendor offerings. Nutanix’s cloud-based deployment strategy is a differentiator. The company’s Xi Cloud Services is expected to challenge AWS, Microsoft Azure and Google Cloud in the infrastructure-as-a-service (IaaS) market.
Nutanix Price and Consensus
Nutanix price-consensus-chart | Nutanix Quote
Even though the company has been making losses since its inception, it is reporting narrower-than-expected losses. In fourth-quarter fiscal 2022, Nutanix reported a non-GAAP loss of 17 cents per share, narrower than the year-ago quarter’s loss of 26 cents per share.
Nutanix’s growing recurring revenue stream reflects customer loyalty to its solution portfolio, which improves the visibility of its revenue growth trajectory. During the latest quarterly release, the company added 620 new customers, bringing the total client number to 22,600. Further, the company’s transition to software-only sales is expected to significantly boost gross margin.
We believe that Nutanix’s remarkable transformation journey from a loss-making company to more of a high-growth recurring revenue-generating firm has made it a lucrative takeover target recently.
The company reported revenues of $1.58 billion in fiscal 2022. Subscriptions, Non-Portable Software, Hardware and Professional Services accounted for 91%, 3%, 0.4% and 6% of revenues, respectively. Further, Nutanix is a cash-rich company, which ensures that it can pursue strategic acquisitions and investments in growth initiatives. As of Jul 31, 2022, the company had cash, cash equivalents and short-term investments of nearly $1.32 billion.
Though most of the technology sector stocks have been hit hard due to several economic issues, including the Federal Reserve’s aggressive interest rate hikes, the Russia-Ukraine war-led energy crisis and the persistent inflation over the last year, Nutanix stands strong, despite being one of the most beaten-down stocks.
Shares of Nutanix have plunged 17.3% year to date. At Friday’s closing price of $26.35, the stock traded 29.1% lower than its 52-week high of $37.16 attained on Oct 22, 2021. NTNX currently trades at a forward 12-month price-to-sale multiple of 3.27, significantly lower than the five-year high of 8.16 as well as the Zacks IT Services industry’s average of 3.75.
The strength of Nutanix’s fundamentals and solid prospects, along with attractive valuations, is likely to have made the company a lucrative acquisition target.
Zacks Rank & Other Key Picks
Nutanix currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks from the broader Computer and Technology sector are Keysight Technologies (KEYS Quick QuoteKEYS ) , Digi International (DGII Quick QuoteDGII ) and Baidu (BIDU Quick QuoteBIDU ) , each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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DGII’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 28.6%. Shares of the company have improved 32.2% over YTD.
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Baidu’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 58.1%. Shares of BIDU have slumped 32.6% over YTD.