NEW YORK (TheStreet) -- Red Hat (RHT) - Get Report shares are down 1.13% to $60.98 in early market trading on Monday after the open source software solutions provider was downgraded to "market perform" from "outperform" by analysts at Wells Fargo today.

Red Hat's stock has outperformed the S&P 500 Index over the past 52 weeks by nearly double, gaining 29.93% compared to the index' 14.76% increase over the same period.

The firm made a valuation call on the company which last week announced a collaboration with fellow tech vendor Huawei to leverage Red Hat's OpenStack cloud orchestration software against Huawei's telecom company connections.

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"Carriers and telecommunications service providers are under pressure to modernize their network infrastructure to meet demands created by new service offerings and the explosive volume of data crossing the network," said senior VP Tim Yeaton of the deal.

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

"We rate RED HAT INC (RHT) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, increase in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

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

  • RED HAT INC has improved earnings per share by 19.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, RED HAT INC increased its bottom line by earning $0.93 versus $0.77 in the prior year. This year, the market expects an improvement in earnings ($1.55 versus $0.93).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Software industry average. The net income increased by 14.7% when compared to the same quarter one year prior, going from $40.81 million to $46.82 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 26.8%. Since the same quarter one year prior, revenues rose by 19.1%. 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. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.96 is somewhat weak and could be cause for future problems.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 32.19% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • You can view the full analysis from the report here: RHT Ratings Report

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