On Thursday, Nutanix (NASDAQ:NTNX) stock maintained its Sector Weight rating according to a recent assessment by KeyBanc.
The firm's stance remains unchanged even after Nutanix reported strong third fiscal quarter results for 2024 and provided an outlook for the fourth fiscal quarter that suggests a decrease in new and expansion business. This anticipated downtick is attributed to a growing proportion of larger-scale deals in the company's pipeline.
The company's management highlighted a significant increase in high-value deals, noting a greater than 30% year-over-year rise in deals exceeding $1 million in annual contract value (ACV) over the last three quarters of fiscal year 2024.
Additionally, there was a surge of over 50% in terms of dollar value during this period. These larger deals are becoming more strategic and sizable, with clients leveraging Nutanix's offerings to capitalize on trends in hybrid cloud, disaster recovery, and artificial intelligence.
Nutanix's free cash flow (FCF) guidance for fiscal year 2024 has been revised upward by $100 million from the previous guidance of $430 million. This adjustment reflects a one-time benefit of $30 million from partner payments and the impact of larger deals.
However, this fiscal year has seen an offset of $111 million due to a shift in the second fiscal quarter to funding employee restricted stock unit (RSU) withholding taxes from cash instead of the previous method of selling shares on the open market (sell-to-cover), which has provided an increase in FCF generation.
With strong free cash flow growth and guidance, an expanding pipeline, and unique top-line growth catalysts, KeyBanc has raised its price target for Nutanix to $79.
This new target is based on 10.5 times the enterprise value to calendar year 2024 sales ratio, aligning with peers that follow the Rule of 40 for software companies.
The Rule of 40 is a benchmark that combines revenue growth and FCF margin, which Nutanix is expected to surpass in fiscal years 2025 and 2026.
InvestingPro Insights
As Nutanix (NASDAQ:NTNX) navigates through a period of strategic deal-making and robust fiscal performance, current metrics from InvestingPro reveal a nuanced financial landscape. The company boasts an impressive gross profit margin of 83.85% for the last twelve months as of Q2 2024, underscoring its efficiency in managing costs relative to revenue. This aligns with the larger, high-value deals highlighted by the company's management, indicating a strong command over pricing power and cost control.
Moreover, Nutanix's market capitalization stands at a robust $17.91 billion, reflecting investor confidence and market sentiment. This valuation is particularly noteworthy as the company is trading near its 52-week high, with the price at 99.46% of this peak, suggesting a bullish outlook among investors. Additionally, the company's short-term financial health appears secure, with liquid assets surpassing short-term obligations, an InvestingPro Tip that hints at a stable financial footing for upcoming operational needs.
While the company does not currently pay a dividend, suggesting a reinvestment of earnings back into growth initiatives, analysts predict that Nutanix will become profitable this year. This anticipated shift to profitability, coupled with a strong return over the last year of 150.22%, positions Nutanix as a potentially attractive investment for those looking at long-term growth prospects.
For those seeking deeper insights and additional InvestingPro Tips on Nutanix, including detailed analyses and advanced metrics, consider exploring InvestingPro. There are 13 more tips available that could provide further clarity on the company's financial health and growth trajectory. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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