Nomura: Red Hat Could Have $66 Billion Total Addressable Market By 2020

As companies continue to move applications to the cloud, it's apparent that a hybrid environment is becoming the preferred choice, according to Nomura. 

This bodes well for Red Hat Inc RHT, considered one of the most strategic companies within the enterprise software space.  

The Analyst 

Nomura analyst Christopher Eberle initiated coverage on Red Hat with a Buy rating and $152 price target.

The Thesis

Red Hat is one of the best-positioned infrastructure software companies and offers all the tools necessary to build a hybrid cloud, Eberle said in a note. 

The analyst projects tailwinds to revenue, EPS and cash flow for several years to come due to Red Hat's core RHEL platform, producing 24 percent of subscription revenue.

Red Hat’s OpenStack platform could be as big or even bigger than Red Hat Enterprise Linux OS, the analyst said. 

“RHT’s OpenStack software provides a cloud platform that works across everyone’s cloud. With 70-percent share of the Linux OS market, RHT’s installed base provides for significant cross-selling opportunitites for application development and merging cloud products,” Eberle said.

With a four times greater price point than RHEL, OpenStack could see significant upside from adoption, the analyst said. 

The company’s OpenShift container platform is now considered the "go-to platform" for applications, Eberle said. "OpenShift, at 12-15x the price point of core RHEL, provides the foundation for digital transformation," he said. 

Red Hat has the potential for a $66-billion total addressable market by 2020, according to Nomura. 

Price Action

Shares of Red Hat closed at $128.89 Wednesday, up 0.58 percent. 

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