Red Hat (RHT, Financial) has performed quite well in recent quarters. Its revenue for the previous quarter grew for the 11th consecutive time in the mid-to-high teens. Looking forward, Red Hat continues to strengthen and expand its relationship with customers for its open hybrid cloud platform that continues to mature. It expects cloud computing and big data as key driving source for its open hybrid platform and to boost its revenue in the future. Also, it looks quite strong on exploiting underlying momentum in its core business, emerging product group and better deal activities that should reinforce its bottom line performance going forward.
Improving its strategic position
The open-source software distributor continues to intensify its strategic position. It is witnessing more number of customers for its open hybrid cloud platform, who are modernizing their data canters offerings. Also the company has recently announced the availability of Red Hat Storage Server 3.0 solution for its scale out file storage. It expects this Storage server 3.0 solution to best fit the needs of data intensive enterprise workloads.
In addition, Red Hat has also announced the newer version of cloud infrastructure. Its new Red Hat Cloud Infrastructure version 5 or RHCI 5 is a comprehensive management solution on OpenStack platform. These solutions are expected to support its customers, who are shifting their focus away from traditional data center virtualization to OpenStack powered cloud. In fact, the customers can now effectively manage their virtualization and OpenStack environment through a common platform with this RHCI 5.
Cross-selling will power growth
Moreover, the company is producing strong results through its cross selling activities. Its cross selling components have an advantage going forward as Red Hat plans to include Middleware, OpenStack, OpenShift, CloudForms and Storage to its cross selling technology offerings. Its storage components with its offerings such as Inktank and Red Hat Storage contributed approximately 20% to the top 30 deals. Red Hat has closed approximately 30 largest deals at the end of third-quarter. The company expects these deals to grow wider as more number of customers trusts its open source solutions that offer one of the best datacenter needs.
Meanwhile, Red Hat has recently announced the data of Red Hat Enterprise Linux 7 Atomic Host. This data offers a streamline host platform, which is optimized to run application containers. Also, it has added RHEL Atomic to this platform that should further enhance the performance, scalability and security of containers. This should certainly create optimal platform on which the company will deploy and run application container.
Furthermore, the company continues to expand its relationship with customers and partners. These efforts will certainly assist the company to accelerate deployment for its hybrid cloud solutions. It has entered into a relationship with Wipro in order to design a joint go-to-market with Red Hat hybrid cloud solutions and Wipro’s open source practice. This relationship will assist Red Hat to deliver a comprehensive cloud strategy and solutions for their clients built on Red Hat OpenStack, OpenShift and CloudForms.
Conclusion
Red Hat looks great investment in short as well as in the long-run. Its open hybrid cloud platform continues to win new customers as it matures. Also, the company is investing in many new technologies and expanding its relationship with customers that should deliver great returns to shareholders going forward. The analysts expect its earnings to grow at CAGR of 15.34% for the next five years. This indicates good returns on the stock in the long-run. Also, the stock offers good short term returns as its earnings will grow 17.70% by next year.
Moreover, the stock shares cheap valuation. It trades on the trailing P/E of 72.62 and forward P/E of 37.09 that indicate reasonable bottom line growth for the stock in the future. It has PEG ratio of 2.54 that continues to support its growth over the years. It has profit and operating profit margins of 10.90% and 14.29% respectively for the trailing twelve months. Its balance sheet carries total cash of $803.04 million and has no debt outstanding. Red Hat has operating cash flow of $552.26 million and levered free cash flow of $343.85 million.
