Valuation could be an issue if there's even a slight hiccup in Red Hat's numbers as the shares now trade at a forward price-to-earnings multiple of 45.4X compared to 10.8X for other software names like Microsoft (MSFT) and 11.2X for Oracle (ORCL).
The company has topped Wall Street's consensus view in eight straight quarters, delivering an average upside surprise of 9.25% over that stretch. Topline growth slowed on a sequential basis last quarter though. The sell side is slightly bullish on Red Hat with 14 of the 23 analysts covering the stock at either strong buy (5) or buy (9), but the median 12-month price target sits at $52.
Deutsche Bank weighed in on Monday ahead of the report, saying the stock's appreciation has raised the stakes.
"We expect Revenues/EPS of $291m/ $0.27 compared to street estimates of $291m/$0.27," said the firm, which has a hold rating and a $48 price target on Red Hat. "We expect billings to grow 22% y/y. However, we believe the buy side expectations are much higher, given the strong rebound in the stock to reach an all-time high after it had traded off following the billings miss in the previous quarter. Demand trends continue to be stable and we expect RHT to deliver an in-line quarter."Check out TheStreet's quote page for Red Hat for year-to-date share performance, analyst ratings, earnings estimates and much more. Family Dollar (FDO) will be in the spotlight for its quarterly results on Wednesday as well. Shares of the off-price retailer are up less than 2% year-to-date, closing Tuesday at $58.24. Analysts are looking for a profit of $1.13 a share in the company's fiscal second quarter on sales of $2.46 billion. Guggenheim Securities thinks a miss is very possible because of markdowns pressuring gross margins but it still likes Family Dollar as a long-term play. "Although we expect a noisy operating performance and would not be surprised to see EPS come in below the $1.13 consensus, we think this is largely anticipated," wrote the firm on Monday. "Furthermore, increased confidence in FDO's growth potential, stemming from the efforts of Mike Bloom and his team, should trump this noise." Guggenheim, which has a buy rating and a $65 price target on Family Dollar, thinks the heavy discounting is a "one-quarter issue," adding that "
>To contact the writer of this article, click here: Michael Baron.
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