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Red Hat (RHT) to Report Q1 Earnings: What's in the Cards?

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Red Hat Inc. RHT is set to report first-quarter fiscal 2020 results on Jun 20.

We note that, on average, the company has delivered a positive earnings surprise of 9% in the trailing four quarters. In the last reported quarter, Red Hat delivered positive earnings surprise of 14.9%.

Earnings increased 26.1% on a year-over-year basis to $1.16 per share, primarily driven by 14% growth in revenues, which totaled $879 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, majority of the company’s shareholders approved the transaction at a special stockholder meeting held on Jan 16, 2019.

The company’s stock has returned 6.2% year to date, underperforming the 30.1% increase 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. The company has stated that more than 1,000 customers are using Red Hat OpenShift Container Platform.

Moreover, expanding customer base that included Deutsche Bank, Lockheed Martin, Emirates NBD and Public Health England (PHE) in the first-quarter fiscal 2020 is expected to boost top-line growth.

Additionally, the company’s expanding partner base, including the likes of Hortonworks, Intel, Dell, Google cloud platform, Microsoft Azure, Amazon Web Services (AWS) and NVIDIA, is a key catalyst. 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 to-be-reported quarter, it launched Red Hat Virtualization 4.3, its latest version of Kernel-based Virtual Machine (KVM)-powered virtualization platform. It also released OpenShift 4.

The Zacks Consensus Estimate for revenues and earnings is currently pegged at $926 million and 85 cents, 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.

Alteryx AYX has an Earnings ESP of +13.66% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

MSCI MSCI has an Earnings ESP of +10.00% and a Zacks Rank #2.

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