Red Hat (RHT) to Report Q1 Earnings: What's in the Cards?

Red Hat Inc.RHT is set to report first-quarter fiscal 2019 results on Jun 21.

We note that, on an average, the company has delivered a positive earnings surprise of 10.17% in the trailing four quarters. In the last quarter, Red Hat delivered positive earnings surprise of 13.75%.

Earnings jumped 49.2% on a year-over-year basis, primarily driven by strong top-line growth and operating margin expansion.

Revenues increased 22.8% year over year to almost $772.3 million, primarily on the back of strong demand for hybrid cloud solutions as well as aggressive cross-selling. The figure was better than the Zacks Consensus Estimate of $762 million.

Buoyed by solid results, Red Hat stock has returned 46.8% year to date, substantially outperforming the 16.7% rally in the industry it belongs to.

Strong Partner Base & Acquisitions to Drive Growth

We believe that Red Hat's strong partner base that includes the likes of IBM, Intel, Dell Technologies, Google cloud platform, Microsoft Azure and Amazon Web Services ("AWS") will continue to drive growth.

The partnerships are helping Red Hat to cross-sell cloud-based technology across its customer base. Management expects the expanding partner base to drive 80% of new bookings in the near term.

Additionally, complementary acquisitions have led to a favorable product mix, which is, in turn, bolstering overall results.

The company's strategy of making acquisitions (CoreOS, Permabit, Codenvy, 3scale, Ansible, FeedHenry, eNovance, Inktank, Codenvy) that can be easily integrated into current business has expanded its product portfolio into higher-growth segments, such as Hybrid cloud and other emerging technologies (Cloud Management, OpenShift, OpenStack, and Storage).

OpenShift continues to gain traction, which is a key catalyst for the soon-to-be reported quarter. Another driving force for the quarter is Red Hat's dominance in containerized application development.

For the first quarter of fiscal 2019, Red Hat expects revenues between $800 million and $810 million. Non-GAAP earnings are anticipated to be 68 cents per share.

What Our Model Says?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Red Hat has a Zacks Rank #3 and an Earnings ESP of 0.00%, which indicates an unlikely positive earnings surprise. You can uncover the best stocks to buy or sell, before they're reported, with our Earnings ESP Filter .

Stocks to Consider

Here are a few stocks you may want to consider as our proven model shows that they have the right combination of elements to post an earnings beat this quarter.

SeagateSTX has an Earnings ESP of +0.77% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Methode ElectronicsMEI has an Earnings ESP of +0.67% and a Zacks Rank #2.

eBayEBAY has an Earnings ESP of +0.78% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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