Red Hat Inc.
(
RHT
) is set to release its first quarter 2013 results after the
closing bell on June 20, 2012. In the run up to the earnings
results, we did not notice any substantial movement in analysts'
estimates.
Prior Quarter Highlights
Red Hat reported a mixed fourth quarter, where the bottom line
missed the Zacks Consensus Estimate while the top line surpassed.
The strong year-over-year growth in the top line was driven by
higher demand for Red Hat technologies and efficient sales
execution in addition to upselling and cross selling of Red Hat
products and services.
For the first quarter of 2013, Red Hat expects revenues to be in
the range of $307.0 million to $311.0 million. Non-GAAP EPS is
projected to be in the range of 25 cents to 27 cents. Management
expects the non-GAAP operating margin to be in the range of 24.0%
to 24.2%.
For further details please see:
Red Hat Reports Mixed 4Q
Estimation Revision Trend
Over the past 30 days, none of the 11 analysts covering the
stock revised their estimates for the quarter. Thus, the Zacks
Consensus Estimate for the first quarter was pinned at 19 cents per
share.
Red Hat has matched or exceeded the Zacks Consensus Estimate in
the four preceding quarters. The average surprise in these quarters
is a positive 12.94%, and for the current quarter we expect the
company to beat the Zacks Consensus by the same magnitude.
Analysts expect Red Hat to exceed the consensus estimates on the
back of continued demand for servers. Moreover, strong demand for
RHEL 6 and JBoss is expected to drive the top line for the quarter.
Additionally, the company's offerings in the cloud computing
market, ongoing server virtualizations and traction in the
middleware section are expected to be incrementally beneficial in
the long run.
However, volatility in foreign currencies, especially the Euro,
and an unstable macro-economic environment are the potential
headwinds in the near term.
Recommendation
We believe that Red Hat is emerging as a significant player in
the cloud computing arena over the long term. Red Hat boasts an
impressive product line up and expects to invest heavily on the
development of innovative products. Its significant partnerships
with large public cloud customers such as Amazon Web Services
, International Business Machines Corp.
(
IBM
), NTT and Swisscom are also expected to boost its top-line growth
going forward.
While we believe this is the way to go considering the growth
prospects in the market and growing competition, we note that the
company needs to spend prudently, since its significant costs are
likely to put pressure on the bottom line.
At the same time, we don't expect competitive pressures to
alleviate given the deep pockets of rivals such as
Microsoft Corp.
(
MSFT
),
VMware Inc.
(
VMW
) and
Oracle Corp.
(
ORCL
).
We maintain our Neutral recommendation over the long term (6-12
months). Currently, Red Hat has a Zacks #4 Rank, which implies a
'Sell' rating in the short term.
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