Shares of Red Hat Respond to Morgan Stanley's Upgrade and Optimism

In a report published Monday, Morgan Stanley analyst Keith Weiss upgraded Red Hat, Inc. RHT from Equal-weight to Overweight and announced a $69.00 price target optimistic on billings growth acceleration. Weiss commented on Red Hat's transitional past two years deceleration from 22% in FY12 to approximately 16%. Morgan Stanley forecasts billing growth to accelerate in FY15 compared with consensus' expected continued deceleration. The analyst noted four factors influencing their forecasted acceleration including, "1) stronger growth in the renewal base, 2) improving data points from partners and customers, as indicated by a recent customer survey, 3) non-RHEL products sustaining growth at scale and 4) a reduced potential threat from public cloud workloads." Morgan Stanley added that conversations with Red Hat partners were the "most encouraging" in years with stronger CY14 growth, complemented by a record 3:1 ratio of resellers beating plans. Weiss reported, "This sentiment was echoed by customers, as they recently indicated intentions for a 2.8:1 up-to-down spending increase on Red Hat in CY14, the highest level in almost three years. We see a more complete and mature middleware portfolio as one driver of this dynamic, in addition to measured progress with Storage as Red Hat takes the reins off, resulting in a 7-figure deal in 2Q, while lastly, our survey work points to OpenShift adoption doubling in CY14 from 8% to 16% penetration." Red Hat closed at $56.81 on Friday. Shares were up 3.68% in pre-market trading and is currently trading at $59.06, up 3.96%.