Story updated at 10 a.m. to reflect market activity.
Shares of Red Hat fell 6.2% to $52.65 in morning trading.
The firm maintained its "buy" rating for the software company's stock. UBS analysts said high interest in OpenStack and strong cross-sell helped raise Red Hat's price target.
Must read:Warren Buffett's 10 Favorite Stocks
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 several positive factors, 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, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- RHT's revenue growth has slightly outpaced the industry average of 10.9%. Since the same quarter one year prior, revenues rose by 15.4%. 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 1.24, which illustrates the ability to avoid short-term cash problems.
- RED HAT INC reported significant earnings per share improvement 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 $0.77 versus $0.74 in the prior year. This year, the market expects an improvement in earnings ($1.47 versus $0.77).
- 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 49.6% when compared to the same quarter one year prior, rising from $34.77 million to $52.03 million.
- The gross profit margin for RED HAT INC is currently very high, coming in at 88.35%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, RHT's net profit margin of 13.11% significantly trails the industry average.
- You can view the full analysis from the report here: RHT Ratings Report
Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.