Red Hat, Inc. (RHT) shares rose more than 4% by mid-day on Tuesday after the company reported better-than-expected fourth quarter financial results. Revenue rose 22.8% to $772.3 million – beating consensus estimates by $10.73 million – while net income of 91 cents per share beat consensus estimates by 10 cents per share. The company anticipated generating more revenue but less net income than expected during the first quarter.
Analysts reacted favorably to the quarterly financial results and guidance. BMO Capital raised its price target to $180 per share, citing positives in almost all areas, but it was disappointed by FY2019 margins and operating cash flow guidance. Stifel Nicolaus analysts also boosted their price target to $172 per share, saying that they expected sustained growth with modest margin expansion over the coming years. (See also: Red Hat: Why This Stock Is the Comeback Kid.)
From a technical standpoint, the stock broke out from upper trendline and R1 resistance at around $158.04 to fresh all-time highs. The relative strength index (RSI) is approaching overbought levels at 66.49, but the moving average convergence divergence (MACD) remains in a bearish downtrend following a crossover earlier this month. These indicators suggest that the stock could reverse its trend over the coming sessions.
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Traders should watch for some consolidation between R1 and R2 levels over the coming week. If the stock moves higher, traders should watch for a breakout from R2 resistance at around $168.69. If the stock breaks down from R1 support, traders should watch for a move lower to retest trendline support at around $150.00. The bullish breakout and fundamentals could outweigh bearish technical indicators and ultimately send shares higher. (For more, see: 3 Reasons These Five Stocks Will Outperform the S&P.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.