Red Hat shares jump as results beat views
By Benjamin Pimentel, MarketWatch
Last Update: 3/24/2011 11:19:32 AM
SAN FRANCISCO (MarketWatch) -- Shares of Red Hat Inc. soared Thursday a day after
the company posted results that beat Wall Street's estimates, underscoring the
growing importance of software in the shift toward cloud computing.
Red Hat's (RHT) stock rose more than 16% to $46.44 after its rating was upgraded
by Robert W. Baird from outperform to neutral.
Analyst Steven Ashley cited Red Hat's "accelerating business trends" based on the
gains of its data-center operating-system platform called Red Hat Enterprise
Linux, also referred to as RHEL, and its JBoss application server, which enables
companies to make Web-based programs.
Ashley said in a note that "it is only a matter of time before JBoss crosses the
chasm to mass adoption." He added that RHEL is emerging as "the O/S of choice for
private cloud architectures."
Cloud computing enables businesses to tap computing power in a network instead of
in-house data center, a trend in which business software is critical. Red Hat
offers subscription-based software, a business model that is also gaining ground
in the market.
Recently, Salesforce.com, another company software as a Web-based service, raised
its sales outlook for the full fiscal year, giving its shares a lift.
Pacific Crest Securities analyst Nabil Elsheshai noted Red Hat's 31% billings
growth and a 20% year-over-year gain in deferred revenue. Pacific Crest has an
outperform rating on Red Hat.
"For the first time ever, Red Hat had 30 deals over $1 million, including five
which were pure JBoss deals," Elsheshai wrote.
On the other hand, J.P. Morgan analyst John DiFucci maintained an underweight
rating on Red Hat, saying in a note, "None of the top-line outperformance fell to
the bottom line, either in earnings or cash flow, both of which were in the
guidance range."
He added, "We believe the positive after hours stock reaction to the results
provides an opportunity for investors to exit the shares."
