William Blair Reiterates Red Hat (RHT) at 'Outperform'; Linux Bolsters Beat-and-Raise Quarter
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William Blair affirms Red Hat (NYSE: RHT) with an Outperform rating following Q2 results issued Wednesday night.
The firm summarized:
Red Hat turned in a solid fiscal second quarter, topping consensus by roughly $10 million on revenue and $0.01 on non-GAAP EPS, and guiding fiscal third quarter and full year 2017 above consensus on revenue and EPS. The story in the August quarter was a reacceleration in core infrastructure-related revenue (mainly RHEL), which was up 17% in constant currency (versus 13% in the prior quarter), together with a reacceleration in constant-currency billings growth (up 19% year-over-year versus 16% and 13% in the previous two quarters, respectively). Management noted that the 20% growth in subscription revenue in the quarter was the highest growth rate for a second quarter in five years. Driving the strength was large deal momentum, with 55 deals greater than $1 million, up 60% year-over-year. We believe this reflects the increasing strategic importance that customers are assigning to Red Hat and the expansion of the product portfolio (e.g., management noted three OpenStack deals greater than $1 million).
We continue to see a favorable outlook for the paid/premium Linux market as hybrid cloud models predominate in enterprise IT, and Linux steadily takes workload share from Windows and Unix in public and private clouds. In addition, we expect growing momentum for Red Hat in the emerging market for Linux containers as its technology (OpenShift in particular) helps enterprise organizations make the transition to containerbased application development. Overall, we see no material change in Red Hat’s business trajectory and continue to expect revenue and billings growth in the mid- to high teens.
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