Price Objective
Red Hat Inc. (NYSE:RHT) is undoubtedly the star pick among software stocks and rightly so based on its highly impressive Q3 results. We reiterate RHT with Outperform rating and a Target Price (TP) of $85 per share based on Red Hat's strategic investments in the growing realm of cloud computing, its upselling abilities, its continued growth of its core products along with the increasing demand for LINUX. We dissect the details of each of these factors to show why Red Hat Inc., is the right pick for the quarters to come.
Impressive offerings spark striking growth
Red Hat Inc. the leading provider of open-source enterprise solutions showed strength in its earnings through its strong product line and a winning combination of meticulous cost controls and strategic investments. Better than expected billing, revenue and operating margins of RHT resonated across financial markets and reaffirmed the company's growth potential in the earning results of third quarter of 2015 fiscal year. The Q3 results reported $523.6 million in revenue and $0.48 in EPS, ahead of our expectations of $521.5 million and $0.47, respectively. Billings reflected 14.9% YoY growth to $620.2 million as compared to our expectation of $587.6 million.
The impressive results were driven largely by continued demand for Red Hat Enterprise Linux (RHEL), and strong renewals and support services. The continued surge in demand of RHEL also encouraged cross selling of emerging technologies and enabled the signing of large deals in 3Q15.
On the basis of these positive growth numbers the management provided an ambitious Q4 guidance of $535-539 million in revenue and EPS of $0.47 versus our expectations of $533 million and $0.48. We believe that the future outlook of the company remains positive as RHT has the right mix of strong product line along with a strategic spin of investments in research and
