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CLSA Analysts Tip Their Hat To Red Hat Following Q2 Earnings

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CLSA analysts maintained their Buy rating on Red Hat Inc (NYSE: RHT) as the better-than-expected quarterly results indicate strong underlying momentum in the business.

Second quarter EPS of $0.55 beat street estimates by a penny, while total revenues grew 19 percent to $600 million, topping consensus by 1.6 percent.

Red Hat also increased its full year EPS/revenue outlook to $2.23-$2.25/$2.415 billion to $2.435 billion from prior view of $2.19-$2.23/$2.38 billion-$2.42 billion.

"Key to performance is the strong cross selling, with 70% of the top-30 deals including multiple products," lead analyst Ed Maguire wrote in a note.

Red Hat closed 55 deals over $1 million, an increase of 60 percent YoY. The top-30 largest deal metrics were all over $1 million with five greater than $5 million. Notably, 23 of the top-25 deals were renewed at 105 percent of underlying value.

Maguire believes the company's sustainable long-term growth would be driven by its open-source development model.

"There's bound to be some variability in any enterprise software business, but despite a couple of anomalies in large deals, we are encouraged that the overall business continues to track better than expected," Maguire noted.

For FY 2017, the analyst raised his revenue view to $2.43 billion from $2.41 billion and EPS view to $2.26 from $2.22. The analyst also increased his FY18 revenue estimate to $2.85 billion from $2.79 billion and raise EPS view to $2.80 from $2.70.

"Despite lumpiness in metrics (including a discontinued Federal project), strong billings across the portfolio are driving upward revision," Maguire added.

Maguire also upped his target price on the stock by $5 to $99, implying a potential upside of 28.5 percent.

At time of writing, shares of RedHat rose 5.02 percent to $80.91.

Latest Ratings for RHT

DateFirmActionFromTo
Jul 2019BairdSuspendsNot Rated
Jun 2019William BlairDowngradesOutperformMarket Perform
Nov 2018KeyBancDowngradesOverweightSector Weight

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