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Analysts mixed on Red Hat results

2 min read

The Street was mixed in its reaction to Red Hat's second quarter Friday; the company got a downgrade from ABN AMRO, while other analysts were neutral on its results.

Shares in the Linux operating system distributor were down 2 to 23.25, or 8 percent. There had been some execution worries for the company after its CFO departed in July.

Red Hat beat expectations Thursday, which according to First Call Corp. consensus, were for a loss of 2 cents a share.

ABN AMRO cut its rating on Red Hat to "outperform" from "buy," saying it was concerned about future revenue growth and revenue mix for the company. "Revenue growth was 15 percent, and while it was essentially in-line with our projections, we were hoping for more,'' analyst Keith Bachman said in a research report. One concern is the shift of the revenue mix to less profitable services revenue from subscriber revenue, ABN AMRO said.

J.P. Morgan analyst William Epifanio II said it was a "boring quarter" with no surprises. He said it was good news that Chief Financial Officer Hal Covert's departure hadn't affected the company's performance, and expects their search will be drawn out, as powerful CFO's are hard to come by. Epifanio maintained his "long-term buy" rating on the stock.

"It doesn't appear to be slowing them down," said William Crawford, analyst for Merrill Lynch, of the company's search for a CFO. The real question is are they becoming commoditized' -- increasing gross margins show that their not," Crawford said. Better-than-expected gross margins were the only surprise Crawford saw in the quarter. He maintained an "accumulate" rating on the stock.

In a conference call CEO Matthew Szulik said Red Hat was "recruiting aggressively" for a new CFO, but isn't going to rush it until they find the right person. Officials said they're committed to meeting previous revenue and margin goals, and see new products and services, as well as some acquisitions, in the pipe.