Zacks senior technology analyst Steve Biggs, CFA is reiterating his Sell recommendation on shares of Rackable Systems (RACK) today. We found why in his latest report:

After having the market for high-density, low-power, servers to itself, larger competitors have entered the market where Rackable Systems competes. Industry leaders, such as Sun and Dell, have much greater resources than Rackable and have competed aggressively on price. As a result, Rackable has had to cut prices to its largest customers, which account over half of its revenue.

Until Rackable can grow its business outside of its core customers, the company will likely struggle to remain profitable. We therefore maintain a Sell rating and our six month target price of $9.50. This represents a P/S [price-to-sales] multiple of 0.77x our revenue estimate of $360 million for 2007.

We believe this added competition is a permanent situation, as the market for low-power servers has grown in size and is now more attractive for large players. In order for RACK to regain improved profitability, the company will need to be successful with higher-margin storage initiatives.

Read the full analyst report on RACK