Red Hat's (RHT) OpenShift, Ansible Adoption to Aid Q2 Earnings

Red Hat Inc.RHT is set to report second-quarter fiscal 2019 results on Sep 19.

We note that, on an average, the company has delivered a positive earnings surprise of 9.71% in the trailing four quarters. In the last reported quarter, Red Hat delivered a positive earnings surprise of 5.88%.

Earnings increased 24% on a year-over-year basis, primarily driven by 20% growth in revenues. Strong demand for hybrid cloud technology solutions as well as aggressive cross-selling drove top-line growth.

However, weakness in Middleware solutions was noticeable. Red Hat blamed the ongoing transition of workloads, from traditional physical deployments to container environments, for sluggish Middleware growth. This is expected to hurt top-line growth for the rest of the fiscal.

For the second quarter, Red Hat projects revenues in the band of $822-$830 million, while non-GAAP earnings are expected to be 81 cents per share.

The Zacks Consensus Estimate for revenues and earnings is currently pegged at $828 million and 81 cents, respectively.

Red Hat stock has returned 24% year to date, underperforming the 28.3% rally of the industry it belongs to.

Red Hat, Inc. Price and EPS Surprise

Red Hat, Inc. Price and EPS Surprise | Red Hat, Inc. Quote

Emerging Technologies: Key Catalyst

Emerging technologies that include Ansible, OpenShift, OpenStack, Storage and cloud management are major growth drivers.

Red Hat's Linux Container platform, OpenShift continues to gain strong traction. The platform was selected by more than 100 new customers in the last reported quarter. Moreover, the expanded partnerships with Microsoft MSFT and International Business Machines IBM are likely to drive adoption of OpenShift.

Notably, the collaboration with Microsoft now enables enterprise developers to run container-based applications across both Microsoft Azure and on-premise environments. Moreover, the combined solution of IBM Cloud and OpenShift is a key catalyst.

Further, expanding customer base of Ansible is also noteworthy. In mid-July, the company announced the general availability of Ansible Engine 2.6. Most recently, the company announced the general availability of Ansible Tower 3.3, which includes an updated user interface, improved scaling and the ability to run Ansible Tower on OpenShift container platform.

We believe that Red Hat's strong partner base that includes the likes of IBM, Intel, Dell, Google cloud platform, Microsoft Azure and Amazon Web Services ("AWS") will continue to drive growth. The partnerships are helping the company cross-sell cloud-based technology across its customer base.

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 +0.03%, which indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell, before they're reported, with our Earnings ESP Filter .

Another Stock to Consider

Here is another stock you may also want to consider, as our proven model shows that it has the right combination of elements to post an earnings beat in the to-be-reported quarter.

Cypress Semiconductor CY has an Earnings ESP of +0.33% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

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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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