Red Hat

(RHAT)

got its second upgrade in two weeks Tuesday, and promptly leaped northward. In recent trading, shares of the Linux vendor were up $1.42, or 10.6%, to $14.84 in heavy volume.

Prudential analyst Brent Thill upgraded the company to overweight, saying: "We think the current share price sufficiently discounts the concerns that have kept us on the sidelines over the past six months -- ASP

average selling price declines, management changes, shifts in the competitive landscape."

Despite the challenge from rival

Novell

(NOVL)

, which has quickly become a credible player in the Linux world, Red Hat remains the market leader by a wide margin. Thill said he doesn't expect that lead to be seriously eroded in the next six months and noted that "market leaders don't lose their competitive edge overnight." (Prudential does not have an investment banking relationship with Red Hat or Novell.)

Once a darling of investors who believed that Linux, an open-source operating system, could successfully challenge

Microsoft's

(MSFT) - Get Report

Windows juggernaut, Red Hat has been beaten up, in part over concerns that a price war with rival Novell is killing profitability.

A sharp slide this summer knocked nearly 60% off the value of Red Hat shares, but

an upgrade by First Albany two weeks ago gave the company a much needed boost.

Analyst Mark Murphy said that while average selling prices declined by 25% between August 2003 and August 2004, volume has increased by roughly 230%, "netting out very favorably in terms of revenue growth, margin improvements and cash-flow generation." (First Albany does not have an investment banking relationship with Red Hat.)