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Red Hat (RHT) Gears Up for Q4 Earnings: What's in the Cards?

Zacks Equity Research

Red Hat Inc. RHT is set to report fourth-quarter fiscal 2019 results on Mar 25.

We note that, on average, the company has delivered a positive earnings surprise of 8.7% in the trailing four quarters. In the last-reported quarter, Red Hat delivered positive earnings surprise of 10.3%.

Earnings increased 31.5% on a year-over-year basis, primarily driven by 13.2% growth in revenues, which totaled $846.8 million.

IBM Set to Acquire Red Hat

International Business Machines IBM is set to acquire Red Hat for approximately $34 billion in cash.

The deal is expected to be completed in the latter half of 2019 through a combination of cash and debt. Consequently, Red Hat’s shareholders will obtain $190 per share in cash, reflecting approximately 62.8% premium over the $116.68 price on Oct 26, 2018.

Notably, the majority of Red Hat shareholders approved the transaction at a special stockholder meeting held on Jan 16, 2019.

The company’s stock has returned 23.4% in the past year, underperforming the 31.7% rally of the industry it belongs to.



Factors to Watch Out

Red Hat is likely to benefit from strong adoption of its emerging technologies that include Ansible, OpenShift and OpenStack in the to-be-reported quarter. In the last-reported quarter, Red Hat OpenShift and Red Hat Ansible Automation experienced strong customer growth, adding more than 100 customers.

Moreover, its expanding partner base that includes the likes of Hortonworks, Intel, Dell, Google cloud platform, Microsoft Azure and Amazon Web Services (AWS) are the key catalysts. These partnerships are helping the company cross-sell cloud-based technologies across its customer base.

The company’s expanding portfolio is also noteworthy. During the fiscal fourth quarter, it announced the availability of Red Hat Ansible Tower 3.4. It also announced the availability of Red Hat CodeReady Workspaces, a Kubernetes-native, browser-based development environment, which enables smoother collaboration across the development team.

Red Hat Cloudforms 4.7, the latest version of the company’s highly-scalable infrastructure management tool, was also made available in the to-be-reported quarter.

We believe Red Hat’s portfolio strength will help in expanding customer base and eventually boost top-line growth. The Zacks Consensus Estimate for revenues and earnings is currently pegged at $8886.7 million and $1.01, respectively.

What Our Model Indicates

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Red Hat has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of stocks you may want to consider as our proven model shows that they have the right combination of elements to post an earnings beat.

Shaw Communications SJR has an Earnings ESP of +1.10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Akamai Technologies AKAM has an Earnings ESP of +5.16% and a Zacks Rank #2.

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