Red Hat Tips its Brim to Q4 Conservative Estimates
Open source software solutions company Red Hat (NYSE: RHT), laughed in the face of several previous estimates set for its fourth quarter as it delivered stellar results far exceeding consensus of 15-16%.
Prompting analysts to raise its price target almost clear across the board, Red Hat's management says sluggish growth potential is a thing of the past as the company has the pipeline to deliver strong results into FY13.
Among the several research firms that were awestruck by Red Hat's results, Oppenheimer raised RHT's PT from $50 to 56, Piper Jaffray raised PT from $59 to $63 and J.P. Morgan increased its PT from $32 to $38 today.
In a research report published earlier this morning, Piper Jaffray commented on Red Hat's newfound, amplified success.
“While we anticipated upside based upon the strong results of our RHT reseller survey, which showed the best feedback in recent years at 1.7% above plan, we did not foresee acceleration in billings growth. RHT issued FY13 revenue guidance calling for 18-20% growth, above consensus of 15%, and guided FY OCF to $440-$460M, above consensus of $414M. We continue to believe RHT is one of the best plays into the secular trends of cloud computing, open-source, virtualization and unstructured data, and should continue taking market share from legacy vendors, consistent with the findings of our recent CIO survey,” Piper Jaffray said.
As RHT has seen today, times have been good for software companies across the industry. Last week, Microsoft (NASDAQ: MSFT) saw price objectives increase as research firms recognized the redesigned/updated Office 15 to be the next catalyst for the company.
Another success story within the past few days is VMware (NYSE: VMW), whose plans for expansion and already sterling reputation put the company on the map in a big, big way.
According to an initiation research report published by Drexel Hamilton on March 26, “[VMware] seeks to move beyond server virtualization to lead what it calls datacenter automation. We think future revenue growth in adjacent markets could prove difficult as the selling proposition moves beyond a definitive short ROI to other benefits, such as agility. Shares of VMware trade at a premium due to being a market leader with nice top line growth, but also due to a small float resulting from EMC owning 80% of the company.”
Morgan Stanley also found VMware to be a unique and valuable stock. The research firm raised PT from $105 to $130 based on near-term, above consensus forecasts.
As software giants position themselves to remain successful in the years to come, analysts may begin to think twice before placing conservative estimates on these three core companies.
RHT is currently trading at $57.95, up +40.59% YTD. MSFT is currently trading at $32.07, up +23.5% YTD. VMW is currently trading at $111.29, up +33.87% YTD.
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