Morgan Stanley Upgrading Red Hat (RHT)

Morgan Stanley is upgrading shares of Red Hat, Inc.

to Overweight, and it has a $55 price target on shares. In a note sent to clients, Morgan Stanley writes, "Declining server growth forecasts have investors expecting decelerating growth in RHT billings, but several factors lead us to believe growth can sustain into FY12: 1) growth in the renewal base will more than offset the server slowdown, 2) JBoss momentum should continue while its book to bill should improve in FY12, 3) free-to-paid migrations remain strong, 4) recent pricing increases for virtualized and multi-CPU servers lift ASPs, while new SKUs expand the TAM, and 5) renewal rates should continue to improve. Sustained billings growth will be matched by higher billings margins and tax benefits, which should accelerate cash flow. We are raising FCF ests. 5% above cons. and our PT to $55." Shares of RHT are up $1.13 in early Tuesday trading to $48.05, a gain of 2.4%.