Red Hat Inc. (NYSE:RHT) reports preliminary financial results for the quarter ended 2012-08-31.
Red Hat Inc. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).
Red Hat Inc.'s analysis versus peers uses the following peer-set: Oracle Corp. (NYSE:ORCL), VMware Inc. (NYSE:VMW), Hewlett-Packard Co. (NYSE:HPQ), Citrix Systems Inc. (NASDAQ:CTXS), Symantec Corp. (NASDAQ:SYMC), CA Inc. (NASDAQ:CA), BMC Software Inc. (NASDAQ:BMC) and Quest Software Inc. (NASDAQ:QSFT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2012-08-31||2012-05-31||2012-02-29||2011-11-30||2011-08-31|
|Revenue Growth %||2.5||6.0||2.4||3.1||6.3|
|Net Income Growth %||(6.6)||4.1||(5.9)||(4.3)||23.2|
|Net Margin %||10.9||11.9||12.1||13.2||14.2|
|ROE % (Annualized)||9.7||10.6||10.3||11.0||11.9|
|ROA % (Annualized)||5.5||6.0||5.9||6.5||7.0|
Red Hat Inc. currently trades at a higher Price/Book ratio (7.5) than its peer median (5.5). The market expects Red Hat Inc. to grow faster than the median of its chosen peers (PE of 76.8 compared to peer median of 30.4), and to improve its current ROE of 10.3%, which is below its peer median of 15.8%. Thus, the market seems to expect a turnaround in Red Hat Inc.'s current performance.
The company's profit margins are below peer median (currently 12.0% vs. peer median of 16.5%) while its asset efficiency is about median (asset turns of 0.5x compared to peer median of 0.5x). Red Hat Inc.'s net margin is less than (but within one standard deviation of) its five-year average net margin of 12.6%.
The company enjoys both better than peer median annual revenue growth of 24.6% and better than peer median earnings growth performance 36.7%. Red Hat Inc. currently converts every 1% of change in annual revenue into 1.5% of change in annual reported earnings. We view this company as a leader among its peers.
Red Hat Inc.'s return on assets is less than its peer median currently (6.0% vs. peer median 8.2%). It has also had less than peer median returns on assets over the past five years (4.9% vs. peer median 7.3%). This performance suggests that the company has persistent operating challenges relative to peers.
The company's gross margin of 88.4% is around peer median, suggesting that Red Hat Inc.'s operations do not benefit from any differentiating pricing advantage. In addition, Red Hat Inc.'s pre-tax margin of 17.4% is also around the peer median, suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
Red Hat Inc. has grown its revenues faster than its peers (20.2% vs. 5.3% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 76.8. Overall, we classify the company's growth prospects as superior relative to its peers.
Red Hat Inc.'s annualized rate of change in capital of 8.1% over the past three years is around its peer median of 8.1%. This investment has generated a less than peer median return on capital of 9.2% averaged over the same three years. The below median return implies that the company is not investing well.
Red Hat Inc. reported relatively weak net income margins for the last twelve months (12.0% vs. peer median of 16.5%). This weak margin performance and relatively conservative accrual policy (25.0% vs. peer median of 12.7%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.
Red Hat Inc.'s accruals over the last twelve months are positive, suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.
Red Hat, Inc. develops and supports Linux and open source software solutions. It provides open source software solutions to the enterprise, including enterprise operating system platform, Red Hat Enterprise Linux, enterprise middleware platform, JBoss Enterprise Middleware, virtualization and cloud solutions and other Red Hat enterprise technologies. Red Hat primarily operates through three geographic business units: the Americas, Europe, Middle East and Africa and Asia Pacific. The firm changed its name from Red Hat Software, Inc. to Red Hat, Inc. in June 1999. Red Hat also offers support, training and consulting services to its customers worldwide. The company was founded by Robert F. Young in March 1993 and is headquartered in Raleigh, NC.
The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party's use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you're agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website analytixinsight.com.