Healthy Results Expected For Red Hat's Q2, Says Barclays

Red Hat Inc RHT is scheduled to report quarterly results on September 21. The company would likely report healthy top and bottom line results, backed by continued benefit of a stable core RHEL business and “generally strong adoption of its faster growth, emerging product offerings,” Barclays’ Raimo Lenschow said in a report.

Analyst Lenschow maintained an Overweight rating on Red Hat, with a price target of $90.

Growth-Margin Tradeoff

Lenschow expects Red Hat to maintain top-line growth in the low-to-mid-teens range, both in the quarter and full year. Adjusted operating margins are likely to remain flat to slightly down, impacted by recent acquisitions.

“We believe that further investments in growth areas should be expected given the company's growth opportunities, although meaningful margin improvement is possible longer term as OpenShift and OpenStack achieve greater scale,” the analyst commented.

VAR Results

Results from the latest reseller survey was marginally more positive than the previous survey, and indicated that a larger number of resellers had exceeded their targets in the quarter. Customer interest in emerging products continued to be strong, and interest in RHEL had reaccelerated.

Lenschow added, “These data points are particularly encouraging given that we believe OpenShift and OpenStack play a relatively large role in the sustainability of Red Hat's longer term top-line growth trajectory.”

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