UBS Cuts Price target on Red Hat (RHT) Following 3c EPS Beat

UBS reiterated a Buy rating on Red Hat (NYSE: RHT), and cut the price target to $85.00 (from $88.00), following the company's 2Q16 earnings results. RHT reported a revenue beat of ~9M, as well as a $0.03 EPS Beat. Billings, however, were reported at 9%, coming up short of consensus.

Analyst Brent Thill commented, "RHT delivered a very clean FQ2, exceeding our expectations across every metric (inc.Rev/EPS by $9M/$0.03), with the exception of as-reported billings (+9% y/y in USD). Digging deeper, while the as-reported billings numbers was clearly impacted by FX, CC provides total billings growth of +17% y/y (vs. +20% in Q1) and ST billings growth of +21% y/y (vs. 22% in Q1). We note that while billings is somewhat noisy and may bounce around from qtr-to-qtr, investors should take comfort in the fact that DR was up 20% y/y in CC, which we still think is a better leading indicator of the true health of the business. In our view, RHT remains exceptionally well-positioned due to continued growth of paid Linux (35% of OS market by 2018), increasing contribution from app-dev/emerging technologies (+48% CC in FQ2, 18% of total subs rev), and future opportunities resulting from natural compatibility with up-and-coming container virtualization technologies (RHEL 7 Atomic, host Linux containers in RHEL)."

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 closed at $72.72 yesterday.

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