4 Opportunities That Could Write The Next Chapter Of Red Hat's Growth Story

Red Hat Inc RHT's earnings report came in better than expected on multiple fronts, including revenue, billings, margins and earnings per share, Wells Fargo's Siti Panigrahi commented in a research report. The analyst maintains an Outperform rating on Red Hat's stock with a price target boosted from $120 to $124 as the bullish case remains in place.

Revenue outperformance in the quarter can be attributed to ongoing momentum in the core RHEL segment along with an increase in cross-selling opportunities from emerging technologies and consulting services, Panigrahi noted. In addition, infrastructure-related subscription revenue grew 13.5 percent year-over-year and app development and emerging technologies saw a re-acceleration in revenue growth.

Overall, Red Hat's earnings report reinforces the fact that the company is well positioned to benefit from the secular trend in hybrid cloud adoption. But Red Hat's ultimate growth opportunity will come from:

1. Continued adoption of Red Hat Linux for mission-critical workloads.
2. Cross-selling opportunities from its emerging technology group to the large installed Linux base.
3. Expected demand for OpenStack-based hybrid cloud.
4. Large deal renewals expected to begin in the bottom half of fiscal 2018.

Bottom line, Red Hat "pioneered" the open-source model and dominates the Linux operating system market but now has "extended its success to a broad stack of technology for private cloud deployment."

At last check, shares of Red Hat were up 4.56 percent at $110.59.

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A Stellar Q1 For Red Hat ______ Image Credit: By Harald Hoyer from Schwerin, Germany - Dripping, CC BY-SA 2.0, via Wikimedia Commons