Channel commentary regarding Red Hat's emerging products such as OpenStack and OpenShift was encouraging, Barclays noted.
"We believe Red Hat continues to benefit from its product diversification beyond the core infrastructure business, and we would expect this to positively impact results again in the second quarter," analysts at Barclays said.
Additionally, the firm believes that the continued interest in newer products, coupled with a stable core, and generally positive commentary regarding deal sizes bodes well for the company's upcoming quarter, according to the analyst note.
Red Hat is a provider of open source software solutions using a community-powered approach to develop and offer operating system, virtualization, middleware, storage and cloud technologies.
Red Hat is expected to report the first quarter earnings results of 2016 fiscal year after the market close on Thursday, June 18.
Shares of Red Hat are down 0.18% to $78.27 in afternoon trading Thursday.
Separately, 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 a few notable 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 robust revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and solid stock price performance. We feel its 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:
- The revenue growth came in higher than the industry average of 5.0%. Since the same quarter one year prior, revenues rose by 15.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- RED HAT INC has improved earnings per share by 8.3% 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 $0.97 versus $0.93 in the prior year. This year, the market expects an improvement in earnings ($1.81 versus $0.97).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 5.8% when compared to the same quarter one year prior, going from $45.07 million to $47.70 million.
- Net operating cash flow has increased to $217.38 million or 17.70% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -17.83%.
- 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. Compared to other companies in the Software industry and the overall market on the basis of return on equity, RED HAT INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: RHT Ratings Report