Nutanix Stock Downgraded By Morgan Stanley, Cites Dell Competition

Morgan Stanley has cut Nutanix’s price target from $53 to $37 per share just two days before the hyper-converged infrastructure pioneer is expected to report its third fiscal quarter earnings.

Morgan Stanley has downgraded Nutanix just two days before the hyper-converged infrastructure pioneer will report its lower-than-initially expected third fiscal quarter earnings.

San Jose, Calif.-based Nutanix was downgraded from “overweight” to “equal weight” in a research report by Morgan Stanley. The global investment bank and financial firm also cut the company’s price target from $53 to $37 per share.

Morgan Stanley analyst Katy Huberty said a “cyclical slowing of demand” along with increasing competitive pressure as the key reasons for Nutanix’s rating and stock downgrade. Huberty specifically cited Dell Technologies, which both partners and competes with Nutanix in the hyper-converged infrastructure space, as a key competitor that will slow down a full recovery of Nutanix’s business.

[Related: Nutanix CEO Dheeraj Pandey On Beating VMware With ‘Openness’]

Nutanix’s stock and market cap plummeted Feb. 28 after the company reported lower-than-expected revenue guidance for its third fiscal quarter. Nutanix expects revenue to be between $290 million and $300 million, while analysts were expecting sales to be around $348 million.

Nutanix will report its third fiscal quarter 2019 earnings on May 30 after the market closes.

One solution provider CEO who is a longtime Nutanix partner said Nutanix executives have reassured partners that the company expects long-term growth ahead.

“These guys have long-term goals. They’re all about entering new markets, making speed to market faster—if you listen to [founder and CEO] Dheeraj [Pandey] and [Chief Product and Development Officer] Sunil [Potti], they talk about the road maps for years down the line,” said the CEO, who declined to be identified. “Obviously in hindsight now, they probably were a little too confident in sales growth year after year, quarter after quarter, which led to that [stock] fall. But as far as their message to us, it’s been about really just staying positive and weathering any storm. … Our Nutanix sales are up over 10 percent year over year and I think they’ll continue to grow this year.”

The CEO said as Dell integrates more closely with VMware, Nutanix is finding new hardware partners to fill the gap. This year, Nutanix formed two potential blockbuster partnerships with Cumulus Networks and Hewlett Packard Enterprise around hyper-convergence. “They’re looking at new avenues to keep HCI sales strong, especially with HPE,” he said. “When you think hyper-converged, it’s Dell and Nutanix.”

According to research firm IDC, Dell owns 28.6 percent of the global hyper-converged market, followed by Nutanix at 14.8 percent, then HPE with 5.4 percent.

Nutanix shares dropped 32 percent in after-hours trading Feb. 28 to $33.70, after the company reported lower-than-expected revenue guidance for its third fiscal quarter. Nutanix’s Nasdaq market cap dropped from roughly $9 billion to $6 billion on March 1.

Nutanix shares steadily increased over the past several months, reaching around $43 per share on May 1. However, shares have fallen back down to $33.19 per share as of Tuesday morning.

In an recent interview with CRN, Nutanix’s CEO said he wasn’t fazed by the stock drop. “The best of companies have had stock drops like this,” Pandey said. “If you build something bold and audacious, you got to fall. But once you fall, how do you rise to the occasion and how do you learn from those mistakes is what builds great companies.”

More than 6,000 customers, partners and employees attended Nutanix’s .NEXT conference this month where the company unleashed a slew of new solutions and partnerships.