PacCrest's McFadden Hikes Red Hat To Overweight On Enterprise Cloud Potential

Red Hat Inc RHT has been winning large deals, and is well positioned for Enterprise Cloud. Pacific Crest’s Ben McFadden upgraded the rating for the company to Overweight, while maintaining a price target of $88.

Core Value Proposition Well Positioned For Cloud

Red Hat’s momentum in core Linux and middleware continues to be strong. Analyst Ben McFadden believes that is upside to the FY17 estimates.

“In our view, Red Hat is increasingly winning large deals due to the strategic nature of its stack, which can provide standardization, cloud management, vendor lock-in mitigation, and more agile application development across both hybrid and public cloud infrastructures,” McFadden wrote.

Pointing out that the company was diversifying “well beyond core on-premise Linux,” the analyst said the application development, emerging solutions and certified cloud provider [CCP] are expected to contribute more than 30 percent of subscription revenue within the next two quarters.

Middleware continues to gain market share, since enterprises are seeking legacy apps for their shift to cloud and mobile. “OpenShift is off to perhaps the fastest start in company history,” McFadden added. He believes these ramping solutions increase the probability of Red Hat generating revenue growth in mid-teens and above for “years to come.”