Red Hat (NYSE: RHT) reported a strong Q3, with overall revenue growth of 15%; 45% revenue growth in emerging technologies and 18% core infrastructure growth at constant currency. However guidance was weak with FY16 revenue guidance increasing 0.3% at the midpoint ($7M), OCF guidance increasing by 0.4% ($2.5M), but decreasing operating margin by 10bps to 23.5%. Despite the mixed guidance, Piper Jaffray analyst, Katherine Egbert, is raising her price target to $95.

RHT and Microsoft reached an agreement under which Red Hat’s version of the Linux operating system will be available to users of Microsoft Azure. This should drive incremental growth for RHT's fast-growing cloud business, particularly with larger enterprises.

The company continues to invest for growth and the mix shift toward higher-growth segments continues to create a headwind to operating margins.

Reacceleration in billings growth to 15%, strong growth across all geographies, and a new relationship with Microsoft speak to Red Hat's momentum as workloads shift on to commodity infrastructure. A lower operating margin going forward reflects increased hiring to meet demand and scale the company for the longer-term. We raise estimates and increase our price target from $89 to $95.

Despite the mixed guidance, the analyst is increasing its PT to $95 is based on 23.2x CY2016E OCF plus $6.15 in net cash/share.

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Shares of Red Hat closed at $78.86 yesterday.