Needham & Company Reiterates Buy on Red Hat (RHT) Following a 3c EPS Beat
Needham & Company reiterated a Buy rating and $86.00 price target on Red Hat (NYSE: RHT) following the company's 2Q16 earnings results. RHT’s $504m revenue and $0.47 EPS were well above consensus $495m and $0.44 EPS. Billings, however, were $479m and below consensus $489m, indicating deferred growth was weaker than expected.
Analyst Scott Zeller commented, "The Red Hat quarter was mixed, with a “beat and raise” on revenue; however, the quarterly billings showed a deceleration of deferred revenue growth. RHT continues its steady growth through the data center, driven primarily by new server workloads going to opensource, where RHT Linux dominates. We still do not see material impact from OpenStack (several questions on the call) and believe OpenStack is well below the $100m annual revenue of RHT Public Cloud. The overall % of revenue from “app development and emerging” products was 16%, vs. 13% last year, demonstrating how RHT is gradually broadening its revenue strength beyond core RHEL. Maintain BUY and $86 target, inching up FY16 estimates on guidance. Our $86 target is 6.2x EV/FY17, and appropriate in our view for a strong performer in large cap Cloud infrastructure software."
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Shares of Red Hat closed at $72.72 yesterday.