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Will Red Hat (RHT) Beat Earnings Estimates?

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Red Hat Inc (RHT - Free Report) is set to report fiscal second quarter 2014 results on Dec 19. Last quarter it posted a 9.1% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Red Hat reported encouraging top-line growth in the fourth quarter of 2013 but higher-than-expected operating expenses led to a contraction in the bottom line. The robust top-line growth was due to higher subscription and training & services revenues.

For the first quarter of 2014, Red Hat expects revenues in the range of $358.0 million to $361.0 million. Earnings on a non-GAAP basis are projected in the range of 30 cents to 31 cents per share.

Management expects non-GAAP operating margin to be around 23.5%. Red Hat also expects interest income of $1.5 million in the upcoming quarter. Moreover, bookings and billings are expected to be low in the first quarter.

Acquisitions and launch of new products in the cloud and virtualization segments are believed to be the major catalysts for registering robust growth in the near-term.

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: That is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 24 cents. Hence, the difference is of 0.0%.

Zacks Rank #3 (Hold): Red Hat’s Zacks Rank #3 when combined with an ESP of 0.0% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:
Winnebago Enterprises Inc (WGO - Free Report) , Earnings ESP of +10.26% and Zacks #1 Rank (Strong Buy)

Apogee Enterprises (APOG - Free Report) , Earnings ESP of +3.03% and a Zacks #2 Rank (Buy)

Fedex Corp (FDX - Free Report) , Earnings ESP of +2.44% and a Zacks #2 Rank

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