Red Hat ()
Linux software provider and cloud giant Red Hat (RHT) is set to report second quarter fiscal 2018 earnings results after the closing bell Monday.
Thanks to an almost 20% jump in first-quarter revenue, Red Hat shares have gone on a tremendous run, rising more than 7% in three months and are now trading at levels not seen since the late 1990’s. The stock closed Friday at $106.30 and is up 52% year to date, compared with an 11% rise in the S&P 500 index.
Indeed, these shares are no longer in the bargain bin — not to the extent they were when I last discussed Red Hat's prospects at the start of the year. But given the rate at which Red Hat’s corporate customers, particularly those of Fortune 500 status such as IBM (IBM) and Microsoft (MSFT) continue to embrace its offerings such as OpenShift — its container platform component — analysts expects strong growth from Red Hat in the next 12 to 18 months. But for the stock to keep climbing, Red Hat must answer the call Monday.
For the quarter that ended August, Wall Street expects the Raleigh, NC-based company to show earnings of 67 cents per share on revenue of $699.45 million. This compares to the year-ago quarter when earnings were 55 cents per share on revenue of $599.8 million. For the full year, ending in February 2018, earnings are projected to rise 18.5% year over year to $2.69 per share, while full-year revenue of $2.81 billion would rise 16.7% year over year.
In the first quarter, thanks to technologies such as its OpenShift, Red Hat’s container platform component that is gaining greater adoption with large franchises, revenues grew 19.2% year over year to $676.8 million. The company is also seeing not only stronger subscription revenues, which are growing at high double-digit rates, but also increased cross-selling of cloud-enabled technology.
What’s more, the company is poised to enjoy higher profits in the quarters ahead as evidenced by the rate at which companies are paying premiums for its RHEL platform (Red Hat Enterprise Linux)— its software-as-a-service suite for managing application servers and data storage. This means despite stiff competition it faces from the likes of Citrix (CTXS) and VMware (VMW), Red Hat doesn’t have to lower its costs to win large deals.
And the fact that it recently expanded its partnership with Microsoft's Azure to make the process of adoption of cloud containers easier, Red Hat should continue to deliver strong recurring revenues from its cloud-based technology. This means while the stock, which is trading at twenty-year highs, is not cheap at 40 times forward earnings, Red Hat — which I expect to reach $120 — nonetheless belong on the radar of investors who are looking for long-term revenue and earnings growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
