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Red Hat, Inc. (RHT - Snapshot Report) is set to report fourth-quarter fiscal 2014 results on Mar 27, 2014. Last quarter, the company clocked a 25.0% positive surprise. The company has delivered positive earnings surprises in all of the last 4 quarters with an average beat of 15.6%. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

We believe soft European macro-environment conditions, currency headwinds, lower services revenues and sluggish IT spending are major headwinds for the company in the near term. Moreover, Red Hat’s strategy of sacrificing service revenues in order to increase subscription revenues in the long run is likely to hurt top-line growth in the next couple of quarters.

Nevertheless, Red Hat continues to gain market share and its Linux servers are well positioned to compete with Microsoft’s (MSFT - Analyst Report) Windows servers in the enterprise market going forward. We are optimistic about the company holding significant growth potential in the public cloud segment over the long term.

We further anticipate Red Hat’s strong product pipeline and continuing investments to expand its product portfolio and partnerships with the likes of International Business Machines (IBM - Analyst Report), Dell and Intel (INTC - Analyst Report) to drive growth, going ahead.

Earnings Whispers?

Our proven model does not conclusively show that Red Hat is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Zacks ESP stands at 0.00%. The Most Accurate estimate stands at $0.26 while the Zacks Consensus Estimate is also $0.26. That makes a difference of 0.0%.

Zacks Rank: Red Hat’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

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