Option Trade 
Red Hat Inc (NYSE:RHT) Calls 
Wednesday, 21st September, 2016

** OPTION TRADE: Buy the RHT JAN 20 2016 80.000 call at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

by Ian Harvey

September 21, 2016

Red Hat Inc (NYSE: RHT), a global provider of open source software solutions, using a community-powered approach to develop and offer operating system, middleware, virtualization, storage and cloud technologies, is set to post its Q217 quarterly earnings results today, Wednesday, September 21st, after the market closes. Analysts expect Red Hat to post earnings of $0.54 per share and revenue of $593.34 million for the quarter.

In the last quarter, the company delivered a positive earnings surprise of 6.06%. On an average, Red Hat has delivered a positive earnings surprise of 9.08% over the past four quarters.

For the second quarter, Red Hat projects revenues of $587 million to $593 million and non-GAAP earnings per share of 54 cents including 1 cent impact from the 3scale acquisition. Non-GAAP operating margin is expected to be 22.8%.

Red Hat Inc. has a market capitalization of $13.75 billion, a price-to-earnings ratio of 66.61 and a beta of 1.32. Red Hat Inc. has a one year low of $59.59 and a one year high of $84.44. The stock’s 50 day moving average price is $73.93 and its 200-day moving average price is $74.03.

Why Red Hat?

Red Hat has been gaining market share and its Linux servers are well positioned to drive topline growth. It is believed that the company also has significant growth potential in the public cloud segment over the long term. In addition, the increasing demand for its offerings like OpenShift and OpenStack is a positive.

Additionally, Red Hat's strong product pipeline, continuing investments to expand product portfolio and key partnerships with the likes of IBM Corp., Dell and Intel will drive overall growth.

Also, extensive share repurchase program is an added positive. At its last earnings call, management announced a new $1 billion share repurchase program to replace the $500 million plan that ended on Jun 30, 2016.

The company also announced the acquisition of 3scale, an application programming interface (API) management technology firm.

Analyst Input

Red Hat Inc. was upgraded by investment analysts at Vetr from a “buy” rating to a “strong-buy” rating in a report released last Wednesday. The brokerage currently has a $81.54 target price on the open-source software company’s stock. Vetr‘s target price indicates a potential upside of 10.49% from the stock’s previous close.

Also, several other equities research analysts have recently commented on the company.

• Deutsche Bank AG restated a “buy” rating and issued a $95.00 target price on shares of Red Hat in a research note on Saturday, August 13th.

• Morgan Stanley downgraded shares of Red Hat from an “overweight” rating to an “equal weight” rating and upped their target price for the stock from $72.18 to $80.00 in a research note on Thursday, July 7th. They noted that the move was a valuation call.

• William Blair restated an “outperform” rating on shares of Red Hat in a research note on Tuesday, July 5th. Citigroup Inc. restated a “buy” rating and issued a $90.00 target price on shares of Red Hat in a research note on Tuesday, July 5th.

• Finally, Pacific Crest restated an “overweight” rating and issued a $88.00 target price on shares of Red Hat in a research note on Saturday, July 2nd.

Two research analysts have rated the stock with a sell rating, five have assigned a hold rating, twenty-three have issued a buy rating and one has assigned a strong buy rating to the company. The stock has a consensus rating of “Buy” and an average price target of $87.69.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the RHT JAN 20 2016 80.000 call at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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