Can Red Hat Keep The Earnings Streak Alive? - Analyst Blog

Red Hat Inc. RHT is set to report first-quarter fiscal 2015 results on Jun 18, 2014. In the previous quarter, the company delivered a positive earnings surprise of 7.69%. On an average, Red Hat has delivered positive earnings surprise of 12.72% in the last four quarters.

Let's see how things are shaping up for this quarter.

Growth Factors in the Past Quarter

Red Hat reported impressive fourth-quarter 2014 results beating the Zacks Consensus Estimates on both lines. For the first quarter of fiscal 2015, the company expects revenues in the range of $412.0 to $415.0 million and operating margin to be around 21.0%. Non-GAAP earnings are expected to be in the range of 32 to 33 cents per share.

Red Hat's strategy of sacrificing service revenues in order to increase subscription revenues in the long run is expected to hurt top-line growth in the next couple of quarters.

Nevertheless, Red Hat continues to gain market share and its Linux servers are well positioned to compete with Microsoft MSFT in the enterprise market. Moreover, strong product pipeline, continuing investments to expand product portfolio and partnerships with the likes of IBM, Dell and Intel will drive further growth.

Earnings Whispers

Our proven model does not conclusively show that Red Hat is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: Red Hat currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 22 cents.

Zacks Rank: Red Hat has a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

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

Micron Technology MU, Earnings ESP of +8.7% and a Zacks Rank #1 (Strong Buy)

Lindsay Corp LNN, Earnings ESP of +3.1% and a Zacks Rank #3 (Hold)