Red Hat Shares Up Following Cowen Upgrade: Risk/Reward Looks 'Compelling Again'

• Shares of Red Hat Inc RHT were trading up about 0.8 percent on Thursday afternoon, after Cowen upgraded its rating on the stock from Market Perform to Outperform.
• The firm set an $86.00 price target on the shares as well.
• The experts argued that the risk/reward profile is once again “compelling.”

In a report issued Thursday, Cowen analysts Gregg Moskowitz, Matthew Broome and Michael Romanelli upgraded shares of Red Hat from Market Perform to Outperform, setting and $86.00 price target.

Although macro concerns have increased, the experts believe near-to-medium term spend with the company will probably remain relatively strong, helping set up a favorable overall landscape for fiscal 2017. In fact, they commented, they expect the company “should minimally be able to grow billings mid-teens over the NTM.”

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Moreover, the analysts noted, checks suggest substantial RHEL (Red Hat Enterprise Linux) share gains will go on. “Meanwhile, though not yet inflecting, demand for OpenStack continues to rise, and we expect another year of high growth (off a still relatively low base),” they added. In addition, the experts see multiple drivers to (and significant revenue synergies from) the Azure partnership.

Finally, Moskowitz, Broome and Romanelli pointed out that, after the 18 percent decline in the stock price seen since the beginning of the year, valuation looks attractive, with the stock is now trading at an EV/FCF multiple in the mid-teens.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.