Red Hat Inc.
) is set to release its third quarter 2013 results on December
20, 2012. In the run up to the earnings results, we do not notice
any movement in analysts' estimates.
Prior Quarter Highlights
Red Hat reported top-line growth of 14.7% year over year to
$322.6 million, which was ahead of the Zacks Consensus Estimate
of $322 million. However, higher-than-expected operating expenses
negatively impacted the bottom line. Earnings missed the Zacks
Consensus Estimate. Operating expenses, as a percentage of the
total revenue, expanded 490 bps year over year to 69.7%.
For the third quarter of 2013, Red Hat expects revenues in the
range of $336.0 million to $339.0 million. Earnings on a non-GAAP
basis are projected to be in the range of 28 cents to 29 cents
per share. Management expects non-GAAP operating margin to be
For further details please read:
Higher Expenses Dent Red Hat's 2Q
Estimate Revision Trend
Over the past 30 days, none out of the 13 analysts covering
the stock revised their estimates. The Zacks Consensus Estimate
for the third quarter remained at 20 cents, reflecting
year-over-year earnings decline of 4.8%.
On the revenue front, the Zacks Consensus Estimate for the
third quarter is pinned at $338 million, 16.6% higher than the
Analysts covering the stock are bullish about Red Hat's
continuing migration from UNIX to Linux, new Linux deployments,
and growth in JBoss. Analysts expect RHEV server virtualization,
cloud computing market, big data storage and traction in the
middleware section to be incrementally beneficial going
However, near-term concerns remain in the form of sluggish
macroeconomic environment leading to weaker-than-expected IT
spending and slower-than-expected hardware sales.
We believe that Red Hat is emerging as a significant cloud
computing story over the long term. Red Hat boasts an impressive
product lineup and expects to invest heavily for developing
innovative products. Moreover, strong product portfolio will help
Red Hat to counter stiff competition from
) going forward.
However, we believe that sluggish IT spending and significant
foreign exchange volatility will keep the stock range bound in
the near term. Moreover, a sluggish services business and
increasing investment may hurt profitability in the near
We maintain our Neutral recommendation over the long term.
Currently, Red Hat has a Zacks #3 Rank (Hold).
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