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BofA Cuts Red Hat to Neutral from Buy


Banc of America downgraded Red Hat (RHAT) to neutral from buy, citing the company's strong long-term growth prospects.

Analyst Kirk Materne says that Red Hat's upcoming investments in research and development as well as sales could limit the upside to his consensus operating margin estimates over the next two quarters. He noted that the uptake around Red Hat's newer products include a global file system and directory; he expects the buildout in distribution partners for these products will be more gradual than for operating systems. He raises his $22 target to $25, but the stock has doubled since February and now trades at full 25 times its estimated 2006 operating cash flow.


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