Rackable Systems "outperform," target price reduced

01/18/07 - RBC Capital Markets

NEW YORK, January 18 (newratings.com) - Analyst Thomas Curlin of RBC Capital Markets maintains his "outperform" rating on Rackable Systems Inc (RACK), while reducing his estimates for the company. The target price has been reduced from $40 to $30.

In a research note published yesterday, the analyst mentions that the company has pre-announced its 4Q revenues in-line with and non-GAAP EPS significantly short of the consensus. Rackable Systems has indicated that its non-GAAP gross margins would be significantly short of the guidance due to stiff competition and higher-than-anticipated DDR memory pricing and a low revenue contribution from its RapidScale product offering, the analyst says. RBC Capital Markets expects the DDR pricing issue to be resolved in 2007, with the expected launch of Vista by Microsoft. The non-GAAP EPS estimate for FY07 has been reduced from $1.34 to $0.81.