An analyst who just initiated coverage of Linux software company Red Hat has broken ranks with his Wall Street colleagues by rating the company's stock a "sell."
Analyst James Gilman of Capstone Investments wrote in a report issued Monday that he expects the company's revenue and earnings per share for the company's current current fiscal year to match or exceed the company's guidance and the consensus of analysts' expectations. But he expects billings -- new business that is sold and billed to customers -- to fall short in the wake of recent downward revisions for the worldwide economy's performance in the second half of this year.
"The reason why we are so focused on billings is because it is a leading indicator for the following year's reported revenue," Gilman noted. "
"Weak" is a relative term, however. Gilman anticipates Red Hat's billings will rise 12 percent this year, which would be the envy of most companies.
But Gilman notes that Red Hat stock is pricey relative to its peers -- with a price-to-earnings ratio twice comparable software companies. And he sees little upside for the stock.
Of more than 20 analysts that follow Red Hat, Gilman is the only analyst to rate it a "sell" or its equivalent, according to Bloomberg News.
Red Hat shares were trading this morning at $31.31, down 51 cents. The company's shares are up 1 percent so far this year but are trading 50 percent higher than their 52-week low last August.
