Enterprise-focused software vendor
Red Hat (RHT) has carved out a profitable niche using open-source software for large companies. Currently, however, Wall Street forecasts a slowing of the company's growth rate.
Red Hat provides operating system, storage management, virtualization and cloud computing software to business from mid-sized to multinational. The company's business model uses open source software such as Linux and then provides updates and software management services on a subscription basis. Red Hat generates 85 percent of revenue from software subscriptions and the balance from charging for training and services.
The Red Hat fiscal year starts on March 1 and the company has reported 2012 third quarter results through Nov. 30, 2011. For the nine months, revenues totaled $836 million, up 25 percent from $664 million for the same period a year earlier.
Non-GAAP income for the three quarters was 81 cents per share up 42 percent from 57 cents. For the full fiscal the consensus earnings estimate is $1.07 per share, compared to 83 cents earned in fiscal 2011.
Consensus estimates
The current Wall Street consensus estimates have revenue growth slowing to 15 percent for the 2013 fiscal year starting in March 2012. Net income is forecast to increase just 6.5 percent to $1.14 per share.
Investors seem to have a different view of Red Hat's prospects, currently valuing the company at 40 times the 2012 earnings estimate.
Red Hat was added as a component of the S&P 500 in July 2009. Since the addition to this major index, shareholders in the stock have seen their investment grow by over 100 percent while the S&P 500 is up 37 percent over the same period.
Recently, Pacific Crest analyst Nabil Elsheshai released a report predicting growth rates of more than 20 percent for Red Hat. Elsheshai has an outperform rating on the stock.
The company next reports on March 22.
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