Cowen Downgrades Red Hat, Sees Little Upside At Moment

• Red Hat Inc RHT shares have climbed 7 percent in the last one month, despite slipping below $70 on September 29.
• Cowen’s Gregg Moskowitz downgraded the rating on the company from Outperform to Market Perform, while maintaining the price target at $82.
• Although the company is strategically well positioned, data center and infrastructure spend could moderate going ahead, Moskowitz mentioned.

Analyst Gregg Moskowitz wrote, “We continue to believe RHT is seeing a boost from RHEL 7, and early interest in containers on Linux should provide downstream benefits.” He added that Middleware remains impressive, and there is an upturn in the company’s public cloud momentum.

Moreover, checks indicate an uptick in activity, and Red Hat’s “positioning within the OpenStack ecosystem provides investors with potential for significant longer-term upside, in our view,” Moskowitz said.

Despite these positives, Intel has recently reduced its 2016 growth expectations for its data center business. Moreover, VMW has indicated that its weaker bookings had resulted in part from customer deliberation over cloud architecture.

Red Hat’s shares have gained 11 percent year-to-date, and have risen 37 percent since the beginning of 2014. The company’s share price performance has been driven mostly by upward number revisions.

Moskowitz commented that although the company continues to be strategically well-positioned, “with only modest upside to our price target at present, and with the possibility of moderating data center / infrastructure spend, we believe the risk/reward has become balanced.”