Red Hat (RHT) Numbers Trimmed at Needham & Company Post Q4

March 28, 2013 8:28 AM EDT
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Price: $74.20 +0.38%

Rating Summary:
    27 Buy, 10 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Investors took their frustration out on Red Hat (NYSE: RHT) following a Q4 flop after the close, sending the stock down as much as 10%. However, all is not lost, according to analysts at Needham & Company.

The firm reiterated their Buy rating while trimming their price target from $63 to $60.

Analyst weighs in: The FebQ results were negatively received at the print, as deferred and billings looked well below consensus, but shares recovered in the aftermarket. At a high level, the likely reason for confusion was big deals and their unbilled backlog growth not showing on the balance sheet, which optically depressed deferred revenue. Other closely followed metrics on RHT largely looked good, with the Top 25 deals renewing at 120%+ their original contract size, and 50% of the top 30 deals included a middleware component. Guidance was tepid, with F1Q(May) and FY14 guidance for revenue, EPS and cash flow all below consensus, though narrowly. Product contribution was solid from the core business, as well as Middleware, though revenue catalyst expectations for Storage (Gluster) and RHEV (virtualization) were muted, and we believe these catalysts may be more than 1 year away now, leaving us with Middleware as the near-term catalyst. Management’s comments on the macro picture and verticals were less cautionary than we’ve heard from others in software, though we note Federal was called out as a challenge by RHT. We continue to believe RHT is capable of weathering the current macro environment better than other large-cap peers and we maintain our BUY rating, but we are lowering our price target from $63 to $60, based on tepid guidance and muted comments on storage and virtualization as revenue catalysts."

The firm trimmed FY14 EPS from $1.39 to $1.33 and sets FY15 at $1.53.

For an analyst ratings summary and ratings history on Red Hat click here. For more ratings news on Red Hat click here.

Shares of Red Hat are down 4 percent to $48 in pre-open trade.

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