Red Hat (NYSE:RHT) is expected to report Q3 earnings after the market close on Tuesday, December 22, with a conference call scheduled for 5 pm ET.
The consensus estimate is 16c for EPS and $188.29M for revenue, according to First Call. Jefferies expects operating cash flow that is inline with consensus, which appears to be about $57M, or 29c. They are below consensus at $49M, or 25c.
For revenue Jefferies expects $188.6M, just above consensus. Guidance is $187M-$189M. They have modeled EPS of 16c versus guidance of 15c-16c. Jefferies believes management has stepped up its enforcement of the RHEL open source contract terms over the past few quarters leading to better-than-expected cash flow results. Their recent checks indicate that these audits may be covering some weakness in demand that is probably recession related such as weak server sales. Jefferies believe that Oracle's (NASDAQ:ORCL) impending purchase of Sun Microsystems (JAVA) could also introduce some price pressure beginning in the current quarter. With cash flow comps becoming a bit tougher and a high valuation, Jefferies recommends holding Red Hat shares until a better entry point can be found.