On back of a “RHELsilient” fourth fiscal quarter print for 2018 from Red Hat Inc (NYSE:RHT), shares have popped 2.5% in trading today.
Additionally, one bull just got a surge in confidence on the open source solution provider, finding cause to back his bullish case with “even greater conviction.”
Nomura analyst Christopher Eberle commends the steam that seems to be blasting forward for tailwinds from RHT’s hybrid cloud strategy- which he judges by a “record number” of big deals in the fourth fiscal quarter that swim over $1 million; a marked more than 50% jump year-over-year.
“We believe the valuation gap to peers should continue to close based on RHT’s strong top-line growth, superior margin profile, and momentum in winning larger deals continues,” writes the analyst, who reiterates a Buy rating on RHT while boosting the price target from $152 to $182. Notably, the new, higher expectations indicate a close to 14% upside from current levels.
“We continue to view RHT as one of the most strategic companies in the enterprise infrastructure software space,” adds Eberle, asserting: “Perhaps the most impressive takeaway from RHT’s earnings was the company’s ability to exceed expectations with respect to billings.”
For the fourth fiscal quarter, the company reported a 25% rise in billings growths on CF basis, which is not quite as strong as the 29% seen this time last year, but quite a beat against the Street’s forecast for 13% in growth. Eberle attributes this homerun to sustained momentum from the likes of OpenShift, OpenStack, and Ansible. Core RHEL revenues also proved robust, reporting the most knockout year-over-year growth rate seen since the second fiscal quarter of 2017- hitting a $2 billion run rate. “The business appears to be firing on all cylinders,” praises Eberle.
For bulls, analyst likewise anticipates a “focus on RHT’s comfort with respect to OpenShift’s market positioning vs. Pivotal (RHT has nearly 2x as many customers and is growing customers at over +90% vs. Pivotal’s +16%),” in addition to the other strengths of the print- including an “impressive billings beat” at hand.
Bears could find “OpenShift-triggered headwinds for the middleware business could persist longer than RHT has indicated,” and “guidance could also be a sticking point,” notes Eberle. Yet, ultimately, “there wasn’t much to poke holes in this quarter” for a company that delivered a standout quarterly earnings show.
TipRanks showcases a largely optimistic Wall Street taking gamble on this tech player. Out of 19 analysts polled in the last 3 months, 12 rate a Buy on RHT stock while 7 hedge their bets on the sidelines. Worthy of note, the 12-month average price target stands at $168.00, marking nearly 6% in upside potential from where the stock is currently trading.
