Will Red Hat (RHT) Pull Off a Surprise in Q1 Earnings?

Red Hat Inc.RHT is scheduled to report first-quarter fiscal 2018 results on Jun 20. In the last quarter, the company delivered positive earnings surprise of 7.69%. On an average, the company has delivered a positive earnings surprise of 8.24% in the trailing four quarters.

Revenues increased 15.7% year over year to $629 million, beating the Zacks Consensus Estimate of $620 million as well as its own guided range of $614-$622 million.

Earnings (including stock base compensation) of 42 cents per share easily surpassed the Zacks Consensus Estimate by 3 cents. Adjusted earnings (excluding stock-base compensation) increased 17.3% year over year to 61 cents per share, which was in line with the guidance.

Notably, Rad Hat's shares have performed quite well since the beginning of 2017. The stock has outperformed the S&P 500 on a year-to-date basis. While the stock has returned 26.1%, the index gained 10.3% during the same time frame.

Let's see how things are shaping up prior to this announcement.

Factors to Consider

The availability of Red Hat Gluster Storage 3.2., as announced on Mar 23, and introduction of a new partner program are notable additions. Also, the launch of Red Hat's fully containerized API management platform is one of the driving factors.

We believe accelerated adoption for offerings like OpenShift and OpenStack will drive top-line growth. Also the public cloud sector continues to offer growth opportunities.

However, weak IT spending and increasing competition from key players like Accenture ACN and IBM IBM remain headwinds.

Red Hat projects revenues of $643 - $650 million for the soon-to-be reported quarter. Non-GAAP operating margin is expected to be 20%.

Red Hat, Inc. Price and EPS Surprise

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

Earnings Whispers

Our proven model does not conclusively show that Red Hat is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see.

Zacks ESP : Red Hat currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 34 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank : Red Hat has a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock to Consider

Here's a company that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat in its upcoming release:

Keysight Technologies KEYS has an Earnings ESP of +1.89% and a Zacks Rank #2. 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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