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Red Hat Q4 Earnings Beat Views, But Q1 Profit Outlook Merely Meets

Leading Linux software provider Red Hat ( RHT ) late Tuesday reported fiscal Q4 earnings and revenue that beat Wall Street expectations and helped ease fears of tech spending softening, but its EPS outlook for the current quarter merely met views. Shares were down 4% in after-hours trading, after the earnings release. In Tuesday’s regular session, Red Hat stock rose 1.1% to 75.71. Shares had touched a 15-month low below 60 last month after hitting a 16-year high above 84 in December. The Raleigh, N.C.-based company posted earnings per share minus items of 52 cents, up 21% from the year-earlier quarter. Sales for the quarter that ended Feb. 29 rose 17% to $544 million. Both numbers beat the consensus estimate. Analysts polled by Thomson Reuters on average had expected the cloud vendor to report EPS ex items of 47 cents on revenue of $537 million. For its fiscal Q1, Red Hat guided EPS ex items at 50 cents on revenue of $558 million to $566 million, vs. 44 cents and $481 million in the year-earlier quarter. Analysts had modeled 50 cents and $554.6 million, so while the sales outlook beat, the EPS outlook merely met. Drexel Hamilton analyst Brian White called Q4 “another strong quarter” with a “strong revenue outlook” in a research note after the earnings release. Red Hat revenue comes from subscriptions that customers pay for support, training and integration services in using the open-source version of its Linux operating system. The platform includes applications, middleware, desktop domains and an operating system. Red Hat was founded 23 years ago. “The fourth quarter marked our 56 th consecutive quarter of revenue growth, contributing to Red Hat’s first fiscal year crossing $2 billion in total revenue,” Red Hat CEO Jim Whitehurst said in the company’s earnings release. “The fourth quarter was a strong close to the year as our results exceeded our guidance. “We maintained a high level of execution throughout the fiscal year, which contributed to greater than 20% constant currency revenue growth in each quarter.” Red Hat Reports Record Year-End Backlog Of $2.13 Billion Red Hat said that it had ended the year with a record backlog of $2.13 billion, up 15% year over year. The company has made a strategic shift to cloud computing, a fast-growing tech field dominated by Amazon.com ( AMZN ), Microsoft ( MSFT ) and Alphabet ( GOOGL ). Red Hat has been able to carve out a share of the pie. It focuses on hybrid cloud services, which partly use the low-cost public cloud and partly provide the privacy of private cloud services. “Investors have asked whether the public cloud is a positive driver for Red Hat,” Whitehurst said on the company’s earnings conference call. “We firmly believe that it will be a hybrid cloud world where applications will run across all four footprints — physical, virtual, private cloud and public cloud. “We are providing technologies that enable choice and consistency across all four environments, and we enhance this value with application development technologies, storage and management.” In November, Red Hat announced a partnership with Microsoft, which made the Red Hat Enterprise Linux (RHEL) available on Microsoft’s Azure cloud platform. As part of the deal, Red Hat will provide Microsoft with its enterprise version of Linux for use as the “preferred choice” on Microsoft’s Azure cloud services. Microsoft, formerly a rival, has been rolling out other Red Hat products, including its JBoss Enterprise Application Platform, Gluster Storage and platform-as-a-service product OpenShift. In a research note Monday, Drexel analyst White said that the movement toward open-source software and the momentum to cloud computing “will provide enough of a tailwind to offset any macro softening.” White rates Red Hat stock a buy, with a price target of 98. “We believe Linux will continue to gain market share in 2016 as next-generation applications are developed on RHEL, while we look forward to development of the Microsoft partnership,” White wrote. In a research note last week, Deutsche Bank analyst Karl Keirstead raised the issue about competition from Amazon, which offers a free Linux open-source operating system and support via its cloud-based Amazon Web Services platform. He concluded that the number of migrations from RHEL to Amazon Linux remains quite modest and mostly confined to small enterprise customers. “Larger RHEL-centric customers have only a small mix of workloads on Amazon Web Services, they value operating system consistency across their hybrid infrastructures, they prefer support from Red Hat and/or view the cost savings of a switch as being too modest to be worth the hassle,” Keirstead wrote. He reiterated a buy rating on Red Hat stock, with a 95 price target. Image provided by Shutterstock .  

Google Cloud Chief Ignites Expansion To Catch Amazon, Microsoft

Alphabet ( GOOGL ) will open data centers in Oregon, Japan and elsewhere before the end of 2017 to support its cloud infrastructure and app platforms and take on Amazon.com ( AMZN ), the industry’s current leader, according to a news report Tuesday. Google has three “cloud regions” now and plans to add another 10 cloud regions over the next 12 to 18 months, either as facilities leased from other providers, or built and operated by Google, according to the Bloomberg report. “Cloud region” is the Google term for a data center equipped with computers and software that customers can rent over the Internet. Google’s new cloud chief Diane Greene – who also sits on the Alphabet board – will oversee the expansion, Bloomberg said. Greene co-founded VMware in 1998. “There was a pretty darn good vision in place and now I’m just bringing everybody together so that we all know what we’re doing,” Bloomberg quoted Greene as saying. “The cloud is a revolution, I mean it’s rivaling the industrial revolution, and it’s pretty fun being this involved.” The openings will increase the number of “cloud regions” run by Google to 15, according the Bloomberg report. Amazon currently has 12 regions and plans to open another five. Amazon unit Amazon Web Services (AWS) is now the biggest provider of infrastructure as a service (IaaS), where customers rent computer servers and data storage systems accessed via the Internet. Microsoft ( MSFT ) ranks second, while Alphabet unit Google ranks third. Cloud computing, an increasingly popular way for companies to run their IT operations. That’s a $20 billion-a-year business forecast to grow 35 percent over the next year, according to Gartner Inc. Google is also working on tools that can broaden its corporate user base to include less technically savvy customers, and it’s embarked on a hiring spree aimed at selling and explaining these new products, according to the report. The Internet company is set to hold a conference in San Francisco for cloud customers starting Wednesday. Amazon stock rose 1.2% to close at 560.48 on Tuesday. Microsoft stock rose a fraction to close at 54.07. Alphabet stock fell a fraction to close at 760.05.  

Heavy Construction, Automakers Among 10 Groups Up 20% in Four Weeks

The market has had a nice five-week run. So have oil prices. The S&P 500 on Tuesday traded as high as 13.6% above its Feb. 11 low of 1810.10 and back on positive ground for the year. West Texas Intermediate crude was 53% above its February low — its best move since a nine-month, 62% climb to near $115 a barrel in 2010-11. That combination had, on Tuesday, driven 10 industry groups to gains of more than 20% over the past four weeks. Three of those groups were oil-related: International Exploration and Production, U.S. E&P, and Field Services. But the biggest gains did not come from oil. At the top of the list, Metal Products-Distributors had hammered out a 45% gain over the past four weeks. The group is up 73% from a January low, although still 45% below its high mark set in April 2014. Olympic Steel ( ZEUS ) and Norway’s Norsk Hydro ( NHYDY ) are a few of the names that have been around for decades. The only stock in the group with a Composite Rating from IBD above 90 is the relatively newer  Park-Ohio Holdings ( PKOH ), which trades a far-too-thin 51,000 shares a day. The next biggest gain — a 30% rise — comes from the automakers group. No surprise that the star here is Tesla Motors ( TSLA ). Tesla put in a 70% advance off its Feb. 9 low of 141.05, retaking support at both its 10- and 40-week moving averages.  The stock’s chart is volatile and sloppy, but arguably is presenting a deep cup base with a 243.73 buy point. This setup comes just ahead of Tesla’s release of its mass market Model 3 , slated for late next week. India’s Tata Motors ( TTM ) is also below a cup-base buy point. But, while analysts expect Tesla’s EPS to rebound sharply this year and next, consensus views see Tata’s earnings losing ground again this year (down 44% to $1.97 a share) before a projected 199% rebound in 2017. Steel producers and specialty steel makers took two of the top five gains among industries. Big moves by specialty steel heavyweights Carpenter ( CRS ) and Allegheny ( ATI ) helped power the group’s 29% advance. But the fundamentals of both stocks have much work to do before making the leadership grade. On the strictly steel products side, Nucor ( NUE ) and Steel Dynamics ( STLD ) are basing. Both are still fundamentally weak, although Steel Dynamics’ EPS are forecast to rebound 78% this year and 29% in 2017. In the Building-Heavy Construction group, big-bore builders Fluor ( FLR ) and Aecom Technology ( ACM ) helped drive the advance. Thinly traded Granite Construction ( GVA ) broke out of a cup-with-handle base at 44.93 on Tuesday. Analyst consensus projects that the road and highway builder’s EPS will jump 31% this year and 35% in 2017. Metal ore miners swept up 23% in the past four weeks. A sharp rebound in iron ore prices, sparked by pledges of reduction in China’s steel industry production, fueled advances by both large and small players in the group. But few in the industry see conditions truly improving until late this year, or early in 2017.