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Earnings Preview: IBM deal in focus as Red Hat gears up for Q3 report

The upcoming earnings announcement of Red Hat (RHT) will be one of the most closely-watched events, with investors looking for the details of the recent agreement to be acquired by IBM (IBM).

The company, which provides open source software solutions, is slated to announce its third-quarter results Monday after the closing bell. It is expected to report earnings of $0.87 per share for the November quarter when revenues are predicted to grow 14% year-on-year to $853.6 million.

Red Hat second quarter 2019 earnings
Red Hat Q2 2019 Earnings Infographic

The growing demand for hybrid cloud technology solutions and a further sharp increase in subscription revenue – thanks to emerging technologies like Ansible and OpenShift – will fuel the bottom-line growth.

A better than expected outcome, which is very likely considering the positive trend seen in the previous four quarters, might drive the stock higher. Definitely, this is not the time to sell as the uptrend will be sustained in the foreseeable future, especially considering the shareholder meeting to be held early next year to vote on the IBM deal.

The growing demand for hybrid cloud technology solutions and higher subscription revenue might fuel Red Hat’s bottom-line growth

In the second quarter, a sharp increase in operating costs weighed down on the Raleigh, North Carolina-based company’s reported profit. Excluding one-time expenses, earnings grew 11% to $0.85 per share aided by a 14% revenue growth.

As part of ramping up its high-demand hybrid cloud offerings, Red Hat this week acquired Boston-based tech firm NooBaa for an undisclosed amount. It is believed that the company is well positioned to take forward its growth strategy, buoyed by the recent acquisitions and strategic partnerships. Of late, the company has been focusing on hybrid cloud architecture and cloud-enabling technologies to remain relevant in the fast-growing sector.

Also see: Red Hat Q2 2019 Earnings Conference Call Transcript

Among competitors, Oracle (ORCL) will be reporting the results for its most recent quarter Monday after the market closes. The software giant is expected to earn $0.78 per on revenue of $9.53 billion.

Shares of Red Hat maintained a steady uptrend in recent years. After losing momentum mid-year, the stock surged and hit a record high last month after IBM agreed to acquire it for $34 billion. The stock opened Friday’s session higher but slipped into the negative territory as trading progressed.

 

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text

 

Johnson & Johnson: Key points on the asbestos report and stock slide

Johnson & Johnson’s (JNJ) stock fell over 8% in intraday trade on Friday after Reuters published a report stating that the company was aware that its baby powder contained the carcinogenic asbestos. The consumer products company has thousands of lawsuits pending over claims that its baby powder has led to cancer.

Here are some key points from the report:

# Reuters went through company memos, internal reports and other confidential documents, along with deposition and trial testimony, which showed that from 1971 to the early 2000s, J&J’s raw talc and finished powders tested positive for small amounts of asbestos occasionally and that the company did not disclose it to regulators or the public.

# The documents also show that efforts to influence the plans of US regulators to limit asbestos in cosmetic talc products and scientific research on the health effects of talc were successful.

# Several reports from J&J’s scientists and external labs identified contaminants in talc and finished powder products as asbestos or described them in terms typically applied to asbestos.

It’s a whopping $4.7 billion penalty for Johnson & Johnson in talcum powder case!

# In 1976, the US FDA was considering limits on asbestos in cosmetic talc products. During this time, despite at least three tests by three different labs from 1972 to 1975 finding asbestos in its talc, including a case of reportedly high levels, J&J told the agency that no asbestos was found in any sample of talc produced between December 1972 and October 1973.

Ernie Knewitz, J&J’s vice president of global media relations, wrote in an emailed response to Reuters’ findings, “Plaintiffs’ attorneys out for personal financial gain are distorting historical documents and intentionally creating confusion in the courtroom and in the media. This is all a calculated attempt to distract from the fact that thousands of independent tests prove our talc does not contain asbestos or cause cancer. Any suggestion that Johnson & Johnson knew or hid information about the safety of talc is false.”

 

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