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Switch's Q3 Beat A Sign Of Things To Come, Says Credit Suisse

Shanthi Rexaline

Shares of Switch Inc (NYSE: SWCH) retreated following the release of third quarter results, its first as a public company. The pullback came despite the company, which provides colocation space and related services to a host of sectors, reporting 20 percent year-over-year revenue growth and 44 percent adjusted EBITDA growth.

The top- and bottom-line results were ahead of estimates. Switch issued in line guidance for the fiscal year 2017.

The Analyst

Credit Suisse analyst Sami Badri maintained an Outperform rating and $22 price target for the shares of Switch.

The Thesis

Analyst Badri expects strong performance amid the company's heavy ramp of planned data center campus expansions, which are scheduled to be completed by fiscal year 2019. (See Badri's track record here.) 

"With one of the lowest churn rates in the industry, we expect solid business scale with little disruption as new data center campuses begin monetizing capacity," Badri said. 

See also: 4 Analysts Issue Their First Research Notes On Switch

The third quarter outperformance was driven by 20 percent year-over-year growth in colocation and a 19 percent increase in connectivity, the analyst said. Switch maintained the churn rate at 0.3 percent and got approval for three more company patents, according to Credit Suisse. 

Even as the company's guidance was above Credit Suisse's estimates, the research firm left its forecasts unchanged, pending better visibility into future facility developments.

"Switch offers one of the purest ways to capture the proliferation of the cloud," Badri said. 

The Price Action

After recording a listing gain of 23 percent to $20.84 on its Oct. 6 debut, shares of Switch have been trading in a tight range of $18 to $20.45, although it hit a high of $24.90 in its first trading session.

At the time of writing, shares of Switch were down 7.80 percent at $18.44.

Related Link:

Switch Keeps Recent IPO Market Momentum Going

Latest Ratings for SWCH

Date Firm Action From To
Oct 2017 Goldman Sachs Initiates Coverage On Neutral
Oct 2017 JP Morgan Initiates Coverage On Overweight
Oct 2017 Credit Suisse Initiates Coverage On Outperform

View More Analyst Ratings for SWCH
View the Latest Analyst Ratings

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