Morgan Stanley Maintains Overweight on Red Hat (RHT)

Morgan Stanley is out with its report today on Red Hat RHT, maintaining Overweight after RHT's strong Q4 results. In a note to clients, Morgan Stanley writes, "RHT blew out Q4 ests. with key metrics effectively dismantling the three bear cases weighing on the stock. 1) Billings accelerated to +31% YoY in Q4, up from 20% in Q3 and ahead of buyside expects in the +20% range while some feared deceleration. 2) New billings likely grew ~50% YoY in Q4 vs. +6% server growth in Dec., underscoring our thesis that RHT will further decouple from server units. 3) OCF beat cons. by 6% and grew 22% YoY in Q4. More importantly, the big Q4 billings means OCF in Q1 could be huge, with +40-50% YoY growth or better. This should put RHT on track for +20% CFFO growth for CY11 — which is accelerating growth. While Japan is a risk, we believe the strong Q4 bodes well for Q1 and FY12. With business accelerating, estimates moving higher and the stock cheap vs. growth, we remain buyers." At the time of posting, shares of RHT were trading pre-market at $44.42, up 11.13% from Wednesday's close.