Red Hat (RHT) shares are getting a big boost this morning from Stifel Nicolaus analyst Tim Klasell, who raised his rating on the open source software company's shares to Buy from Hold, while setting a $49 price target.
Klasell points out in a research note that the stock has retreated almost 13% since reporting solid fiscal third quarter results in late December, sharply lagging the Nasdaq Composite. He writes that the stock is now trading at 6.9x his calendar 2011 revenue forecast, and 30x expected 2011 free cash flow; that may not sound like value investor territory, but Klasell notes that RHT is trading at 9.1x trailing 12 months sales, a discount to its historical median of 10x.
Klasell remains bullish on Red Hat's fundamentals, for four reasons:
- Red Hat, he writes, is a "well-executing, defensive company."
- The company has successfully diversified away from Linux with JBoss.
- Oracle is moving its Solaris OS to the high-end of the market, leaving an opening for Red Hat.
- The overhang on the stock from the long-pending sale of Linux rival Novell is "largely over."
RHT this morning is up $2, or 5%, to $42.
