By Zacks Equity Research
    
Red Hat Inc. (RHT) is set to release its fourth-quarter 2012 results on Wednesday. 

In the run up to the earnings results, we do not notice any substantial movement in analysts' estimates for the quarter.

Highlights from the prior quarter

Both top and bottom lines of Red Hat surpassed the Zacks Consensus Estimates in the third quarter. This was driven by higher demand for cloud-computing technologies, as customers increasingly upgraded their data centers to facilitate the adoption of cloud computing. Moreover, the company witnessed solid double-digit growth across all the regions during the reported quarter.

Expectations from the current quarter

For the fourth quarter, Red Hat expects revenues in the range of $289 million to $292 million. The Zacks Consensus Estimate is pegged at $291 million. The non-GAAP earnings per share (EPS) is projected in the range of 26 cents to 27 cents, significantly higher than the Zacks Consensus Estimate of 20 cents. Operating margin is expected to be around 25.5% and the tax rate is projected at 31%.

Red Hat expects fiscal 2012 non-GAAP EPS (excluding stock-based compensation) to range from $1.07 to $1.08. The Zacks Consensus Estimate for fiscal 2012 is pegged at 81 cents. Moreover, Red Hat expects operating cash flow to be between $370 million and $375 million.

Estimates revision trend

Over the past 30 days, none of the 11 analysts covering the stock revised their estimates for the quarter. Thus, the Zacks Consensus Estimate for the fourth quarter was pinned at 20 cents per share.

Likewise, for fiscal 2012, none of the analysts covering the stock revised their estimates over the last 30 days. The Zacks Consensus Estimate remained at 81 cents.

Analysts expect Red Hat to exceed estimates on the back of large deal signings and robust billing revenue. Moreover, strong demand for RHEL 6 and JBoss is expected to drive the top line for the quarter. Additionally, the company's offerings in the cloud-computing market, coupled with server virtualizations and middleware section, is expected to be incrementally beneficial in the long run.

Our take 

Red Hat has consistently exceeded estimates in the four preceding quarters. The average surprise in these quarters is a positive 14.39%, and for the current quarter we expect the company to beat the Zacks Consensus by the same magnitude.

Red Hat is emerging as a significant cloud-computing provider. The company's CloudForms, aninfrastructure-as-a-s​ervice offering, and Openshift, a platform-as-a-service​ offering will likely position Red Hat as a premier vendor of cloud technologies going forward.

Red Hat boasts an impressive product line up and expects to invest heavily for developing innovative products.

However, Red Hat faces competition from Microsoft Corp (MSFT) and Oracle Corp (ORCL), which could be a headwind going forward. The company's increasing investment in the business will also challenge near-term earnings.

We maintain our "neutral" recommendation over the long term (six to 12 months). Currently, Red Hat has a Zacks No. 3 Rank, which implies a "hold" rating in the short-term.

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