Red Hat Analyst Roundup After Q3 Earnings

Red Hat Inc RHT reported Q3 earnings Thursday and beat expectations. Shares rallied Friday and recently traded at $67.82, up 10.28 percent.

Analysts commented on the stock after the earnings release and conference call. Below are highlights along with current ratings and price targets.

Barclays - Overweight, $77 price target

“Red Hat reported healthy Q3 results ahead of consensus on most key metrics, despite FX headwinds that were meaningful. Underlying momentum in the core business, emerging product groups, and better large deal activity reinforce our positive view on the stock. The billings proxy (calculated based on cash flow) was up 19 percent y/y and beat consensus comfortably. Total revenue and profitability were also better than expected, though deferred was just below consensus estimates.”

Deutsche Bank - Hold, $66 price target

“Red Hat (RHT) posted solid 3QF15 numbers, highlighted by 18 percent c/c revs growth and a revs beat ($456m compared to the $452m high end of guidance despite a tougher-than-expected FX headwind), 19 percent billings growth (up from 17 percent the prior two quarters) and a margin beat. We do not believe that the announcement that CFO Charlie Peters (age 60, CFO since 2004) is leaving Red Hat in 2015 will be construed as a negative. Coupled with solid results from ORCL and ACN, the Street outlook for IT spending in 4Q14 should improve. We maintain Hold on balanced risk/reward.”

Citi - Neutral, $70 price target

“While we like RHT's positioning in core RHEL and emerging growth areas and believe the company is executing well, upside beyond $70 (20x+ FCF) likely requires sustained high teens billings growth which looks like a stretch. We continue to like VMW best in infrastructure software due to discount versus peers and 2015 catalysts (notably vSphere 6).”

Morgan Stanley - Overweight, $77 price target

“Solid underlying fundamentals fought thru tough compares and FX headwinds to sustain high teens billings growth in RHT's Q3. With durable Linux growth and a ramping emerging tech biz, RHT looks to be 'the' play on the mainstreaming of Open Source.”

Bank of America - Buy, $72 price target

“We continue to believe that a mid-to-high teens billings growth is sustainable going forward. Reported billings growth does not reflect all of the growth in the Red Hat Certified Public Cloud (+50 percent y/y), as it bills one month in arrears instead of one or more years in advance, and thus does not show up in billings. Management has commented that >50 percent of Cloud customers are SMBs and many are not a prior RHT customer, lowering cannibalization risk. RHT is wisely investing in R&D and acquiring technologies as a number of new technologies begin ramping (OpenStack, containers, PaaS, storage). The new technologies have already led to stronger early interest in RHEL 7 relative to previous versions.”

Stifel - Buy, $76 price target

“Overall, we believe there is growth left with core RHEL/middleware, RHT has plenty of irons in the fire with newer initiatives (OpenStack, Atomic, cloud service providers, storage, etc.), and the company continues to become a more strategic vendor as its open hybrid cloud platform matures. That said, we still believe newer products are a multi-year opportunity and expect RHT to continue investing which should limit meaningful leverage in the near term. That said, it appears the strength in the quarter should carry-over into 4Q and we raise our target price to $76 from $64.”

Credit Suisse - Outperform, $75 price target

“Red Hat's outperformance in the quarter reinforces our thesis that the continued momentum of RHEL, coupled with growing adoption of open source in enterprises, has enabled Red Hat to increasingly upsell its emerging products. In the long term, we believe that Red Hat is well positioned to benefit from the growing adoption of OpenStack and the cloud computing trend.”