Red Hat: A Strong Buy

Zacks

On Dec 28, 2013, Zacks Investment Research upgraded Red Hat Inc. (RHT) to a Zacks Rank #1 (Strong Buy). Long-term expected earnings growth rate of 19.1%, impressive third-quarter results and a positive estimate revision trend makes Red Hat an attractive investment opportunity.

Why the Upgrade?

Red Hat reported strong third-quarter results, beating the Zacks Consensus Estimate on both lines. Earnings jumped 44.8% from the year-ago quarter to 42 cents per share. Revenues increased 15.4% year over year to $396.5 million and were ahead of management’s guided range of $381.0 million to $384.0 million.

For the fourth quarter of fiscal 2014, Red Hat expects revenues in the range of $397.0 million to $400.0 million. Management expects operating margin to be around 24.5%. Non-GAAP earnings are expected to be in the range of 36 cents to 38 cents per share for the upcoming quarter.

We believe that strong billings growth (up 19.0% year over year), solid product pipeline, continuing investments to expand product portfolio and partnerships will drive growth. Moreover, Red Hat continues to gain market share. We believe that the company has significant growth potential in the public cloud segment over the long term.

Estimate Revision

The Zacks Consensus Estimate for fiscal 2014 increased 5.2% (5 cents) to $1.01 per share as most of the estimates were revised higher over the last 30 days. For fiscal 2015, the Zacks Consensus Estimate increased 1.2% (2 cents) to $1.15 per share over the same time frame.

Other Stocks to Consider:

Other players in the technology industry, which look attractive at the current levels, include American Software Inc. (AMSWA), Interactive Intelligence Group (ININ) and MicroStrategy Inc. (MSTR). All these stocks carry the same Zacks Rank as Red Hat.

Read the Full Research Report on RHT
Read the Full Research Report on ININ
Read the Full Research Report on AMSWA
Read the Full Research Report on MSTR


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