Citi Sees 24% Upside In Red Hat Shares

Citi sees a 24 percent upside in the shares of Red Hat Inc RHT as it has confidence in the company's growth opportunity from share gains and success of bundling higher-value technology (Openshift, EAP, storage, etc.).

"We see consensus concern in infrastructure around public cloud to be mis-placed here and as growth is sustained through public cloud ramp, we see this diminishing, leaving 15–20 percent FCF growth compounding shares. Further upside would materialize if 'infrastructure discount' diminishes," analyst Walter Pritchard wrote in a note.

Pritchard, who has a Buy rating on the stock, still believes Red Hat remains the only core infrastructure stock where public cloud does not look disruptive.

"For those in the technical weeds, we believe, on the roadmap, is RHT being able to integrate with proprietary AWS services such as RDS, Lambda, etc, keeping RHT relevant even in a world where enterprise customers adopt higher-level services and 'lock in' to public cloud platforms," Pritchard highlighted.

At the time of writing, shares of Red Hat were down 0.81 percent to $72.01. The analyst has a price target of $90, implying an upside of 24 percent from Thursday's close.

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