Rackspace Hosting soars to new highs

A technical breakout bodes well for this cloud-computing play.

By TheStockAdvisors Feb 7, 2012 6:35PM
by Leo Fasciocco, Ticker Tape Digest

Rackspace Hosting (RAX), which provides Internet hosting and cloud-computing services, is our latest featured breakout stock.

Rackspace serves some 130,000 business customers and manages more than 66,000 servers, 2.1 million email accounts, and 417,000 cloud-hosting domains. It offers its products under the Fanatical Support brand and sells services to businesses in more than 120 countries. Rackspace has annual revenue of $957 million.

The stock went public in 2008 and soared from a low that year of $4.80 to a peak of $23.51 by late 2009. It pulled back to $15 in 2010, but has since moved sharply higher. It closed Tuesday up 2.5% to $49.62. Its push to a new high in recent trading is very bullish and could attract more buying. 

The stock has broken out from a 16-week flat base. The move also represents a breakout from a one-year cup-and-handle base.

The stock's momentum indicator is now strongly bullish. Overall, the tape action has been very bullish and indicates strong institutional buying.

For 2011, analysts expect RAX to post a 50% earnings gain to 53 cents a share from 35 cents a year ago. The stock sells with a very high price-to-earnings ratio of 83. So one needs to be watchful.

Looking to the first quarter, net is expected to surge 70% -- an acceleration in quarterly earnings growth. For all of 2012, Wall Street projects a 52% gain to 80 cents a share.

Institutional sponsorship is excellent. The top three fund holders all have a 5-star rating, including Wells Fargo Advantage Growth Fund, which was a recent buyer of 155,000 shares.

Following this breakout, we are targeting RAX for a move to $57.

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