Red Hat (RHAT ) posted first-quarter earnings per share of 5 cents. First Albany downgraded its investment rating on the shares to neutral from buy.
Analyst Mark Murphy says the shares are up to the $20s from $12 in December, as the company posted superb cash flow and unit shipment growth. While he believes growth in these key metrics remains strong through the first quarter of 2005, he is concerned by some other quarterly metrics; he judges the shares to be fairly valued until he can answer newly surfacing questions. Murphy notes Red Hat's subscription software models were designed to create superior revenue predictability; therefore, he's disappointed that its $41.6 million first quarter revenue missed the $43 million consensus estimate, which forces him to reexamine his expectations for growth in Red Hat's indirect channel.