Wall Street Weighs In On Red Hat's Impressive Quarter

Red Hat Inc RHT shares jumped more than 4.2 percent Tuesday after the company’s second-quarter earnings report topped market expectations.

A number of Wall Street analyst weighed in on Red Hat following the report. Here’s a rundown of what they had to say.

Voices From The Street

Cowen analyst Gregg Moskowitz said the quarter was strong, but the stock has limited upside after major year-to-date gains. “While we had expected healthy revenue upside, we were surprised by the strength in operating margins, which at 26.4% exceeded our and Street forecasts by 250bps,” Moskowitz wrote (see his track record here).

BMO Capital Markets analyst Keith Bachman said Red Hat’s weak 2016 performance is now a distant memory, but questions still remain. “We believe that questions on billings growth, driven by the sustainability of RHEL, will keep the stock range-bound,” Bachman wrote (see his track record here).

Credit Suisse analyst Brad Zelnick said the firm is impressed by Red Hat’s performance, especially its balanced growth. “Although our bias remains positive, we remain on the sidelines given valuation with RHT at 21x EV/CY18 uFCF,” Zelnick wrote (see his track record here).

BTIG analyst Joel Fishbein said Red Hat delivered, even in the face of rising expectations. “With the multi-product strategy clearly picking up momentum with big customers, we think RHT can maintain double-digit revenue, operating income and EPS growth over the next few years,” Fishbein wrote (see his track record here).

Bernstein analyst Zane Chrane said Red Hat hit a home run in the first inning of its hybrid cloud strategy. “We believe we are very likely only in the first inning of Hybrid Cloud and container adoption in what appears to be an accelerating secular trend for both,” Chrane wrote.

Bank of America analyst Kask Rangan said there are still too many moving pieces to recommend Red Hat stock. “If hybrid cloud wins, RHEL’s strategic position/growth opportunity would be intact, but if new apps are written/scaled natively on public clouds, then the picture could change, making RHT push harder with emerging technologies to offset potentially slowing RHEL with adverse margin trade-offs,” Rangan wrote.

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

Ratings And Price Targets

Wall Street is more bullish than bearish on Red Hat, but some firms are more bullish than others:

• Cowen has an Outperform rating and $120 target.
• BMO has a Market Perform rating and $128 target.
• Credit Suisse has a Neutral rating and $113 target.
• BTIG has a Buy rating and $120 target.
• Bank of America has a Neutral rating and $115 target.
• Bernstein has a Market Perform rating and $136 target.

At time of publication, shares of Red Hat were up 4.3 percent at $110.31.

Related Link: Analyst Tips His Cap To Red Hat After Yet Another Beat And Raise Quarter _____ Image Credit: By Tomer Gabel from Israel - Roppongi: Red Hat, CC BY-SA 2.0, via Wikimedia Commons