The NextDC (ASX:NXT) share price just hit a 9-month low despite broker upgrades

NextDC Ltd (ASX: NXT) shares slipped to a 9-month low this week despite an upbeat half-year result which included an upgrade to its FY21 guidance. While the NextDC share price has gone south, some big brokers were impressed with the results and have maintained a bullish stance. 

Broker ratings for the NextDC share price 

On 2 March, Morgan Stanley retained an overweight rating for the NextDC share price with a $14.60 price target. The broker noted that the company’s first-half revenues and operating income were ahead of estimates with a strong pick up in business activity in the new year. 

Citi is also bullish on the NextDC share price but made a slight price target adjustment from $14.80 to $14.45 with a buy rating on 4 March. The broker described the company’s results as solid, with revenue and operating income margins ahead of forecasts. Themes such as accelerated cloud adoption and digitisation were factors behind the broker’s positive view. 

1H21 highlights 

NextDC’s half-year results were solid across all reporting metrics. The company delivered a 27% increase in revenue to $121.6 million and a 29% improvement in earnings before interest, taxes, depreciation, and amortisation (EBITDA) to $65.7 million.

The company is still on its journey to profitability, reporting a loss after tax of $17.5 million. NextDC is well capitalised for growth with $716 million in cash and cash equivalents as of 31 December 2020. It also has a number of debt facilities to provide additional liquidity and capital if required. 

Taking a look at the bigger picture, NextDC has delivered a compound annual growth rate (CAGR) of 21% for revenue and 32% for EBITDA since 2H17. It highlights the increasing use of hybrid cloud and connectivity both inside and outside the data centre as customers expand their digital ecosystems. 

Upgraded guidance fails to ignite NextDC share price 

Upgraded guidance is always the icing on the cake after a solid earnings announcement. NextDC upgraded its revenue guidance to $246 million to $251 million (previously $242 million to $250 million). The business is seeing strong growth in recurring data centre services revenue, underpinned by long-term customer contracts. 

The company’s continuous investment into new centres creates additional capacity and inventory across all markets to drive further enterprise and network opportunities. 

Foolish takeaway

Strong results, upgraded guidance and positive broker ratings have been unable to turn the NextDC share price around so far this week. The company’s shares have dropped by more than 5% since its half-year result and by nearly 14% year to date. 

However, it’s not just the NextDC share price that’s been underperforming. The S&P/ASX 200 Info Tech (ASX: XIJ) index has also been struggling, falling by more than 10% in February, despite the ASX 200 closing 1% higher. 

More reading

• Top ASX shares to buy in March 2021
• NEXTDC (ASX:NXT) share price on watch after strong half and guidance upgrade
• 3 of the best ASX shares you can buy right now
• Is HyperOne listed on the ASX?
• 2 ASX tech shares to buy for cloud computing exposure

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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