I'm initiating coverage on RHT: Strong Buy

*DISCLAIMERS*
- I am not a registered, certified, credible, gifted or even competent securities analyst. I wouldn't take stock advice from myself.
- My recent track record commenting on stocks is suspect.
- I used to work at Red Hat, but there is no insider information here. Just opinions.
- I really want RHT to go up to about $25 by next week. I have a small truck-load (a hand-truck) of options at $23.50 that expire next week, and the kids need new shoes.

OKAY, now that we have that out of the way (and if you're still reading, bravo!): I am initiating coverage on Red Hat (RHT) as a Strong Buy, with a 3 day price target of $25. Yesterday's sluggish MSFT earnings put me over the edge on this - as Red Hat said a couple of years ago when it acquired JBoss, open source is "changing the economics of IT in favor of the customer", and I believe it is starting to show-up in the earnings of proprietary-only software companies.

More importantly, though, the macro-economic conditions are worsening (trust me... I'm trying to sell a house right now), which is a perfect time for low-cost replacements that can help corporate IT organizations cut costs without losing performance. In fact, when Red Hat first launched Enterprise Linux back in 2002, the economy was slow - the message of replacing Unix with Linux resonated because CIOs needed a new approach, and RHEL launched like a rocket (a million servers sold in the first 3-ish years!).

I suspect that cutting costs will rise to the top of the list again for CIOs toward the end of this year, and into next - which is the perfect environment for a strong Red Hat (and other open source players) to accelerate adoption of low-cost, open source replacements for virtualization, proprietary middleware (like JBoss), databases and developer solutions (like Ruby on Rails). At FiveRuns, we are seeing acceleration in adoption of Rails for some of the same reasons, I think.

So, buy RHT. And fast (like today, or early next week would be good).

Comments

[kg]

Plus, Red Hat Presidents are up 200% just this week. With focus on Top Priorities like this, all signs are pointing up!

http://biz.yahoo.com/bw/080425/20080425005438.html?.v=1