Red Hat Earnings And Cash Flow Remain Robust In Q2

Following the release of second quarter results by Red Hat Inc RHT, Barclays reiterated its Outperform rating and $90 price target.

The firm is confident in the company's ability to achieve mid-teen growth in billings, revenue, earnings and cash flow over the near-to-medium term, given the structural shift from proprietary software to open source and on-premise to cloud-based workloads.

Superlative Quarter

Analyst Raimo Lenschow noted the company's billings, revenues and earnings per share were ahead of expectations and operating profit was in line, with a 17 percent growth in RHEL revenues singled out by the analysts as the highlight. Deal activity was large, although renewals were weak. To top it all, guidance was also ahead of expectations on all metrics.

Allaying Concerns

For those worried about the underperformance of the stock this year, mainly due to slowing RHEL growth, Barclays said they can now breathe a lot easier. The firm said it likes the long-term story and shares look attractive on a cash flow basis.

Fine Balance

Given the management stance of striking a fine balance between growth and margin expansion, Barclays noted that earnings per share and cash flow growth remain robust. The firm reasoned that the company's cautious stance on margin expansion in the past may have been due to its desire to invest aggressively in long-term growth opportunities.