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Trade Detector 2014 Idea No- 255 Red Hat

Trade Detector 2014 Idea No- 255 Red Hat

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Trade Detector 2014 Idea No- 255 Red Hat
Trade Detector 2014 Idea No- 255 Red Hat

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CONSENSUS PRICE TARGET MODEL JUNE 11, 2014 1
WWW.SPCAPITALIQ.COM
Lisa Sanders
Director
S&P Capital IQ +1 212 4383291 lisa.sanders @spcapitaliq.com
Global Markets Intelligence
Powered by S&P Capital IQ, providing cross-asset class research; advisory services, and quantitative analytics to meet the changing needs
of today’s investor 
.
 
Trade Detector
Powered by Global Markets Intelligence
 
Consensus Price Target Model
 
BULLISH: RHT
2014 Idea No. 25555799945466186645647 
Red Hat Inc. (RHT) Time: 3:03 p.m. ET Date: June 11, 2014 Current Price: $51.37 May 30 Price: $50.12 Price Target: $64.03 May 30 TP: $63.42 Ranking: *29 May 30 Ranking: *55 Rationale: Good growth prospects and better-than-expected earnings could provide a catalyst to the shares.
 Red Hat Inc. (RHT) provides open-source systems software that gives customers to access to cloud, virtualization, storage, Linux, and middleware technologies. The company has partnerships with Advanced Micro Devices, Intel, Amazon, Google and IBM, among others.
 On Tuesday, RHT released its 7.0 version of its enterprise Linux operating system, which is used by more than 90% of Fortune 500 companies, the company said. The latest release is interoperable with Windows, making it even more attractive to customers.
 
“Red Hat's subs
cription base should continue to benefit from expected growth in Linux's share of total operating systems revenues and middleware subscriptions, as well as the
expansion of the company's sales channel partnerships,” Standard & Poor’s Ratings
Services said
on April 10 as it raised the rating on RHT to ‘BBB’ from ‘BBB
-
’.
 
 The company, with a market capitalization of $9.74 billion, is the smallest of the five companies that make up the S&P 500 systems software group (average market capitalization of $139.74 billion). Peers are Microsoft, Oracle, Symantec, and CA Technologies.
 RHT is scheduled to report 1Q15 results on June 18. Analysts polled by S&P Capital IQ expect the company to report earnings per share (EPS) of $0.33 vs. $0.32 reported a year ago and revenues of $413.9 million, up 14% from 1Q14. The company has beaten EPS expectations in the past five quarters, according to S&P Capital IQ.
 For the year, analysts forecast FY15 (ending Feb. 28, 2015) revenues of $1.75 billion and EPS of $1.55, up from $1.53 billion and $1.49 reported for FY14. The consensus long-term growth forecast of 15.71% is superior to the S&P 500 peer group average of 6.98%.
 When
Standard & Poor’s Ratings Services raised RHT’s rating, it
cited
“continued good
operating performance, with revenue growth in the mid-teens area, stable operating margins in the high 20% area, and solid annual free cash flow generation exceeding $450
million.”
 Analysts polled by S&P Capital IQ expect RHT to generate free cash flow of $546.1 million in FY15, up from $461 million last year.
 Based on the S&P Capital IQ consensus price target, the shares
recommended as
“outperform”—
have 25% upside potential from current levels over the next 12 months.
 
TRADE DETECTOR CONSENSUS PRICE TARGET MODEL JUNE 11, 2014 2
WWW.SPCAPITALIQ.COM
Year to date, the shares have declined 8.4% vs. an 8.6% gain in the S&P 500 Systems Software Index.
 Risks to the forecast include competition to Linux from Unix and Windows, smaller economies of scale than peers, and technological obsolescence.
Red Hat vs. S&P 500 Systems Software
Source:
S&P Capital IQ (a 5 Year chart is available on S&P Capital IQ)
. Disclosure:
Past performance is not indicative of future returns. Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index.
Glossary
Equity One Model:
The investment objective of the Trade Detector Equity One Model is capital appreciation with a secondary objective of income. The Equity One Model is an equity long strategy that utilizes four separate quantitative strategies with selection
criteria based on fundamental factors including proprietary S&P Capital IQ research and Standard & Poor’s credit
 ratings. The four separate strategies are adapted from the: S&P Competitive Advantage, S&P Dividend and Income Growth, S&P Total Yield, and S&P Intrinsic Value. Each strategy selects 30 stocks from the S&P 500 index. The selections from each strategy are combined and duplicate stocks are eliminated. The total number of selected investments may vary from month to month. Equity One Model rebalances at the
 beginning of each month based on the prior month’s data, and a new list of stocks is established. This
 list of stocks is compiled in a monthly stock selection list that is generated at the beginning of each month.
Consensus Price Target Model:
 The investment objective of the Trade Detector Consensus Price Target is capital appreciation. The Consensus Price Target Model is an equity long strategy that selects stocks from the S&P 500 index. At the beginning of each month,
the model compares Capital IQ’s 12
-
month forward looking consensus target price to the company’s prior month’s closing stock price.
The stocks are ranked from the highest to lowest differential between the consensus target prices and the closing stock prices. These rankings are compiled in a monthly stock selection list that is generated at the beginning of each month.
Monthly Stock Selections:
 Lists that compile stocks that meet criteria established in Equity One Model and Consensus Price Target Model
(together, the “Models”)
. Separate lists are created based on the model.
Bullish:
The Models rebalance at the beginning of each mont
h based on the prior month’s data
. A new Monthly Stock Selection list is established for the
 Equity One Model,
and c
ompared to the prior month’s list, stocks that remain in and/or are added to the new list are
considered Bullish.
Consensus Price Target Model 
 ranks stocks in quintiles. The rankings are compiled in a monthly stock selection list that is generated at the beginning of each month. At inception, the selection list comprised the top 100 stocks known as the first quintile. After rebalancing each month, new stocks are added to the selection list if they are within the first quintile. A stock is considered Bullish if remains on the selection list if it is in the first or second quintile.
 
-20.00%-15.00%-10.00%-5.00%0.00%5.00%10.00%15.00%Red Hat, Inc. (NYSE:RHT) - Share PricingS&P 500 Systems Software (Sub Ind) Index - Index Value
 
TRADE DETECTOR CONSENSUS PRICE TARGET MODEL JUNE 11, 2014 3
WWW.SPCAPITALIQ.COM
Exit:
The Models
rebalance at the beginning of each month based on the prior month’s data
. A new Monthly Stock Selection list is established for the
 Equity One Model,
and c
ompared to the prior month’s list, stocks that are no longer in the list are considered Exi
t.
Consensus Price Target Model 
 ranks stock in quintiles. Stocks on the prior
month’s list dropping to the third, fourth or fifth quintile are excluded from the new list. Compared to the prior month’s list, stocks deleted are considered
Exit.
Required Disclosures
Trade Detector Reports are series of reports and monthly stock selection lists that are based on two different quantitative methodologies. One methodology is based on the Consensus Price Target model, while the other methodology is based on the Equity One Model that utilizes four separate quantitative strategies. An individual report will only reflect one methodology. Trade Detector Reports are
 prepared by S&P Capital IQ’s Global Markets Intelligence group (“GMI”), which is analytically and editorially ind
ependent from any
other analytical group at Standard & Poor’s Financial Services LLC (“S&P”) or its affiliates.
 
S&P Capital IQ Trade Detector Distribution as of March 31, 2014
All of the views expressed in Trade Detectors Reports reflect GMI’s research
 
models and equity analysts’ opinions regarding any and all of the subject securities or issuers. No part of GMI’s compensation was, is or will be directly or indirectly, re
lated to the specific recommendations or views expressed in Trade Detector Reports. Reports may be updated based on changes in the markets and company fundamentals.
S&P Capital IQ also produces STARS Stock Reports and Quantitative Stock reports. These reports rank stocks in accordance with the following ranking methodologies:
STARS Stock Reports:
 S&P
Capital IQ’s qualitative STARS recommendations are determined and assigned by S&P Capital IQ
equity analysts.
Quantitative Stock Reports:
S&P Capital IQ’s quantitative evaluations are derived from S&P Capital IQ’s proprietary Fair Valu
e quantitative ranking model. The Fair Value Ranking methodology is a relative ranking methodology. As a quantitative model, Fair Value relies on history and consensus estimates and does not introduce an element of subjectivity.
Trade Detector Reports, STARS Stock Reports and Quantitative Stock Reports:
The methodologies used in Trade Detector Reports, STARS Stock Reports and Quantitative Stock Reports (collectively, the “Rese
arch
Reports”) reflect different criteria, assumptions and analytical methods an
d may have differing recommendations. S&P Capital IQ believes that the methodologies and data used to generate the different types of Research Reports are reasonable and appropriate. Generally, S&P Capital IQ does not generate reports with different ranking methodologies for the same issuer. However, in the event that different methodologies or data are used on the analysis of an issuer, the methodologies may lead to different views or recommendations on the issuer, which may at times result in contradicting assessments of an issuer. S&P Capital IQ reserves the right to alter, replace or vary models, methodologies or assumptions from time to time and without notice to clients.
STARS Stock Reports are prepared by the equity research analysts of Standard
& Poor’s Investment Advisory Services LLC (“SPIAS”). All of the views expressed in STARS Stock Reports accurately reflect the research analyst’s personal views
regarding any and all of the subject securities or issuers. Analysts generally update stock reports at least four times each year. Quantitative Stock Reports:
 
The Fair Value ranking distribution is a fixed distribution based on relative weightings as described in the Glossary section of the reports under S&P Capital IQ Fair Value Rank. Certain reports with Fair Value Rank do not have a Buy/Hold/Sell
Ranking (North America) Bullish Exit Total
Equity One Model Number of Stocks 142 36 178 Equity One Model
 Distribution %
79.8% 20.2% 100% Consensus Price Target Model  Number of Stocks 132 66 198 Consensus Price Target Model
 Distribution %
 66.7% 33.3% 100%
STARS Stock Reports: S&P Capital IQ Global STARS Distribution as of March 31, 2014 Ranking North America Europe Asia Global
Buy 35.4% 35.8% 41.9% 36.2% Hold 52.3 43.3 54.3 51.0 Sell 12.3 20.9 3.8 12.8 Total 100.0% 100.0% 100.0% 100.0%

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