This has got to be one off the dumbest, most inconsistent calls to have come along in a little while. I was truly surprised when S&P upgraded RHT on 7/13/2011 - They never like RHT! Things are back to normal and the basis for the downgrade.....competition from MSFT! too funny
July 13, 2011 03:09 pm ET ... S&P DOWNGRADES SHARES OF RED HAT TO HOLD FROM BUY (RHT 44.10***): We continue to see notable potential growth for RHT, related to its leading Linux operating-system franchise, as well as associated more emerging middleware and virtualization offerings. However, we see notable competition, an uncertain global economic backdrop, and unfavorable seasonality possibly adversely affecting growth and margins. We also note RHT's premium multiples and beta, and think the stock could be vulnerable given the company's current valuation. Based on risk-reward considerations, we are downgrading the stock, which trades at 45X our FY 12 (Feb.) EPS forecast. /S. Kessler
June 23, 2011 09:02 am ET ... S&P RAISES RECOMMENDATION ON SHARES OF RED HAT TO BUY FROM HOLD (RHT 43.72****): We calculate May-Q operating EPS of $0.19, vs. $0.15, beating our estimate of $0.18. Revenues rose 25% to $265M, $10M above our forecast. Bookings increased 28% as the company saw strong demand for Red Hat Enterprise Linux 6 and increased adoption for its middleware products. In addition, we think RHT is gaining acceptance for its cloud computing offerings, including CloudForms and OpenShift. We see revenues rising 21% in FY 12 (Feb.), up from our prior projection of 16%. We raise our FY 12 operating EPS forecast $0.04 to $0.79, and our target price by $2 to $54. /J. Yin CFA
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July 13, 2011, 4:21 PM ET
Red Hat: S&P Cuts To Hold On Microsoft Concerns
By Tiernan Ray
Standard & Poor’s analyst Scott Kessler today cut his rating on shares of Red Hat (RHT) to Hold from Buy, arguing that the company faces “notable competition, an uncertain global economic backdrop, and unfavorable seasonality” that may crimp its growth and margins.
The stock’s premium multiple of 45 times earnings for this fiscal year ending in February is too rich for such a scenario, Kessler writes.
Kessler’s primary concern is Microsoft (MSFT):
A bigger competitive problem for RHT [than Novell or other Linux vendors], in our view, comes from Microsoft and its dominant Windows operating system. According to IDC, Microsoft commanded a 68% market share of the worldwide server installed operating systems in 2009, up from 58% in 2003, as Windows continued to gain market share from Unix, mainframes and other operating systems. Although we expect Linux to continue to gain share versus non-Windows OS, we believe Linux is unlikely to capture significant market share from Windows in the next three to five years.
Red Hat shares today rose 9 cents, or 0.2%, to close at $43.87.