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Why Red Hat (RH) Stock Is Climbing Today

NEW YORK (TheStreet) -- Red Hat (RHT) shares are spiking, up 4.5% to $55.50 on Thursday, after beating analysts first quarter earnings expectations and agreeing to purchase eNovance yesterday.

The open source software solutions provider reported adjusted earnings of 34 cents per diluted share, beating analysts expectations by one cent, and a 17% year over year quarterly revenue increase to $423.8 million.

The company also announced that it was purchasing the privately held eNovance company for $95 million in cash and stock options in an effort to expand its capabilities in OpenStack technology.

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TheStreet Ratings team rates RED HAT INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate RED HAT INC (RHT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • RHT's revenue growth has slightly outpaced the industry average of 7.5%. Since the same quarter one year prior, revenues rose by 15.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • RHT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.17, which illustrates the ability to avoid short-term cash problems.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The net income growth from the same quarter one year ago has exceeded that of the Software industry average, but is less than that of the S&P 500. The net income increased by 4.9% when compared to the same quarter one year prior, going from $42.97 million to $45.07 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Software industry and the overall market, RED HAT INC's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: RHT Ratings Report
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