Red Hat Inc. ( RHT - Snapshot Report ) is set to release its third quarter 2012 results on Monday, December 19, 2011. In the run up to the earnings results, we do not notice any substantial movement in analysts’ estimates for the quarter.

Highlights from the Prior Quarter

Red Hat reported earnings per share (EPS) of 22 cents (including stock-based compensation expenses but excluding amortization), which increased 69.2% from 13 cents reported in the year-ago quarter.

Strong bottom-line growth was primarily driven by higher revenues and operating margin, which fully offset the slight decline in gross margin and higher tax rate in the quarter.

For further details please refer to: Red Hat Posts Strong 2Q

The Way Ahead

For the third quarter of 2012, Red Hat expects revenues in the range of $288.0 million to $290.0 million. The Zacks Consensus Estimate for the third quarter of 2012 is at the higher end of management guidance of $289.0 million.

Non-GAAP EPS is projected in the range of 25 cents to 26 cents. The Zacks Consensus Estimate was significantly low at 19 cents when the company reported results. Operating margin is expected to be around 25.0% and the tax rate 31.0%.

Red Hat expects its fiscal 2012 revenues to be in the range of $1.12 billion to $1.13 billion (prior guidance $1.07 billion to $1.08 billion). The Zacks Consensus Estimate has Red Hat’s revenues at $1.13 billion. Non-GAAP EPS (excluding stock-based compensation) is expected in the range of $1.03 to $1.05 (prior guidance 98 cents to $1.00). Management expects non-GAAP operating income of 25.7% for fiscal 2012.

Red Hat expects the operating cash flow to be between $350.0 million and $360.0 million (prior guidance $330.0 million to $340.0) for fiscal 2012.

Estimates Revision Trend

Over the past 30 days, none of the 13 analysts covering the stock revised their estimates for the quarter. Thus, the Zacks Consensus Estimate for the third quarter was pinned at 19 cents per share.

Likewise, for fiscal 2012, none of the 14 analysts covering the stock revised their estimates over the last 30 days. The Zacks Consensus Estimate remained at 78 cents.

Analysts covering the stock expect Red Hat to exceed estimates for the current quarter on the back of stable demand scenario and realistic guidance. Moreover, analysts expect Red Hat to earn robust sales, as RHEL continues to benefit from Unix replacements. In addition, the company is witnessing an increase in ASPs spurred by pricing changes that were implemented a year ago.

Our Take

Red Hat has consistently matched or exceeded estimates in the four preceding quarters. The average surprise in these quarters is a positive 15.68%, and another positive earnings surprise is expected from the company.

Red Hat is emerging as a significant cloud-computing provider. The company’s CloudForms, an Infrastructure-as-a-Service offering, and Openshift, a Platform-as-a-Service offering will likely position Red Hat as a premier vendor of cloud technologies going forward.

Red Hat boasts an impressive product line up and expects to invest heavily for developing innovative products.

However, Red Hat faces competition from Microsoft Corp ( MSFT - Analyst Report ) and Oracle Corp ( ORCL - Analyst Report ) , which could be a headwind going forward. The company’s increasing investment in the business will also pressure near-term earnings.

We maintain our Neutral recommendation over the long term (6-12 months). Currently, Red Hat has a Zacks #4 Rank, which implies a Sell rating in the short-term.