Red Hat (RHT) Set To Report Q3 Earnings: What's In Store?

Red Hat Inc. (NYSE:RHT) is set to report third-quarter fiscal 2019 results on Dec 17.

We note that, on average, the company has delivered a positive earnings surprise of 7.2% in the trailing four quarters. In the last reported quarter, Red Hat delivered positive earnings surprise of 4.9%.

Earnings increased 24% on a year-over-year basis, primarily driven by 13.7% growth in revenues. Strong demand for hybrid cloud technology solutions and aggressive cross-selling drove top-line growth.

For the third quarter, Red Hat projects revenues of $848-$856 million, while non-GAAP earnings are expected to be 87 cents per share.

The Zacks Consensus Estimate for revenues and earnings is currently pegged at $853.6 million and 87 cents, respectively.

IBM Set to Acquire Red Hat

International Business Machines (NYSE:IBM) is set to acquire Red Hat for approximately $34 billion in cash.

IBM anticipates completion of the deal in the latter half of 2019 through a combination of cash and debt. Consequently, Red Hat’s shareholders will obtain $190 per share in cash, approximately 62.8% premium over the $116.68 price on Oct 26, 2018, after the market closes.

Red Hat is set to host a special meeting on Jan 16, 2019 for shareholders to vote on the proposed merger.

Notably, Red Hat stock has returned 24% year to date, underperforming the 28.3% rally of the industry it belongs to.

Factors to Watch Out

Emerging technologies that include Ansible, OpenShift and OpenStack are major growth drivers for Red Hat.

Both OpenShift and Ansible continue to gain strong traction. Since the first quarter, each of the solutions added almost a hundred new customers. Moreover, Ansible reached approximately 2 million managed nodes at the end of the quarter, almost double the number of managed nodes since fourth-quarter 2017.

Red Hat’s expanding partner base that includes the likes of Hortonworks (NASDAQ:HDP) , IBM, Intel (NASDAQ:INTC), Dell, Google (NASDAQ:GOOGL) cloud platform, Microsoft (NASDAQ:MSFT) Azure and Amazon (NASDAQ:AMZN) Web Services (AWS) will continue to drive growth. The partnerships are helping the company cross-sell cloud-based technology across its customer base.

What Our Model Says?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Red Hat has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Stock to Consider

Here is a stock you may want to consider as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Accenture (NYSE:ACN) has an Earnings ESP of +0.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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