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Red Hat rises as 1st-qtr results top Street's view

NEW YORK (AP) -- Shares of Red Hat climbed Thursday, after the company posted fiscal first-quarter adjusted profit and revenue that beat Wall Street's expectations.

THE SPARK: Late Wednesday, Red Hat, the company behind the Linux open-source operating system, reported that its adjusted profit rose to 32 cents per share from 30 cents per share. Revenue increased 15 percent to $363.3 from $314.7 million as subscription revenue climbed 16 percent.

Analysts, on average, predicted earnings of 31 cents per share on revenue of $359.7 million, according to FactSet

THE ANALYSIS: Stifel Nicolaus' Brad Reback said in a note to clients that Red Hat had a solid quarter, with billings and subscriptions both rising. The analyst is looking for the business to pick up more momentum as the year progresses, as companies seek to modernize data centers and expand their cloud capabilities.

Reback reiterated a "Buy" rating and $62 price target.

Gregg Moskowitz of Cowen and Co. said Red Hat made its way through a choppy operating environment, managing a "solid enough" first quarter.

The analyst said that some of the results could have been better, with billings only rising 12 percent despite easier comparisons than recent periods, but believed the performance was good enough to push the stock higher.

"We continue to believe Red Hat is well positioned to enjoy healthy growth for the foreseeable future, and the year-to-date sell-off has made this stock more interesting on a long-term basis," he wrote.

Moskowitz lifted the company's price target to $53 from $52 and kept a "Market Perform" rating.

Red Hat Executive Vice President and Chief Financial Officer Charlie Peters said in a statement that the company continues to do well despite economic conditions and the impact of foreign currency translation. He said Red Hat is seeing encouraging signs that its federal business will improve in the current quarter.

SHARE ACTION: Red Hat Inc.'s stock gained 56 cents to $46.78 in afternoon trading. Red Hat shares have traded between $44.92 and $60 over the past 52 weeks, and ended Wednesday down nearly 13 percent since the start of the year.