Oppenheimer Reiterates Outperform Rating on Red Hat (RHT)

Oppenheimer is out with a research report this morning, where it reiterates its Outperform rating on Red Hat (NYSE: RHT); it has a $40.00 price target on the stock. The Oppenheimer analysts are citing NOVL’s recent announcement of a “strategic review” and what that may mean for RHT’s shares. The analysts generally believe that if NOVL is bought out then there are some risks for RHT. They noted that an ownership change of SUSE Linux would not likely change RHT’s competitiveness, though, given that SUSE Linux is barely 1/4th the size of Red Hat’s business. The Oppenheimer analysts also posed the idea of Red Hat actually being the acquirer, which they believe would be immediately accretive to RHT’s earnings. As for valuation, the analyst noted, “RHT trades at ~17x our CY11E unlevered FCFPS of $1.61 (after backing out $5/share in cash), below the low end of the sub SW group's 20-30x range. Given accelerating billings growth trends, we contend shares should at least trade in line with the low end of the range.”