On Jul 7, Red Hat Inc. (NYSE:RHT) was upgraded to Zacks Rank #1 (Strong Buy). The upgrade can be attributed to strong first-quarter fiscal 2018 results, which helped management to raise fiscal 2018 guidance.
Earnings (including stock-based compensation) were 40 cents per share in the reported quarter, beating the Zacks Consensus Estimate by 6 cents. We note that Red Hat has outperformed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 11.14%.
Moreover, revenues increased 19.2% year over year to $676.8 million, primarily driven by strong subscription revenues and cross-selling of cloud-enabled technology. The figure was better than the Zacks Consensus Estimate of $647 million and also better than management’s guided range of $643–$650 million.
The robust performance drove current year estimates in the last 30 days. The Zacks Consensus Estimates for fiscal 2018 and 2019 increased 3.3% and 5.1% to $1.88 and $2.25, respectively.
We also note that Red Hat has outperformed the S&P 500 Index on a year-to-date basis. While the stock returned 36.2%, the industry gained 7.7%.
Growth Catalysts
Red Hat is benefiting from strong deal win, improving recurring revenues and cross-selling of cloud-based technology. The recent Amazon (NASDAQ:AMZN) Web Services – OpenShift partnership extension reflects strength in the company’s solutions and platform.
Further, its emerging technologies have gained a lot of traction in recent times. The company anticipates that revenues from the on-demand Certified Cloud and Service Providers (CCSPs) will reach $200 million annual run-rate in the current quarter.
Red Hat noted total 44 deals over $1 million in the reported quarter. Within these deals seven were greater than $5 million and four were greater than $10 million including one deal greater than $20 million.
We note that Red Hat has a strong customer as well as partner base that include the likes of IBM (NYSE:IBM), Intel (NASDAQ:INTC) , Dell Technologies, Google (NASDAQ:GOOGL) cloud platform and Microsoft (NASDAQ:MSFT) Azure.
Moreover, the acquisition of Codenvy will further boost Red Hat’s position in the hybrid cloud computing market.
Other Key Picks
Verint Systems (NASDAQ:VRNT) is another top-ranked stock in the sector that sport the same rank as of Red Hat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Verint is pegged at 8.50%.
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Red Hat, Inc. (RHT): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Verint Systems Inc. (VRNT): Free Stock Analysis Report
Intel Corporation (INTC): Free Stock Analysis Report
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