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First Albany upgrades Linux-software company Red Hat (RHAT
) to buy from neutral.
Analyst Mark Murphy says Red Hat's drop from $30 to $11 per share results in a lower cash flow multiple than even mature and slow-growth software businesses that currently receive. This lessens risk in owning Red Hat, in his view.
Murphy thinks the tone of the business in the company's November quarter supports his targets for subscription volumes, cash flow, potentially setting the stage for the company to post record quarterly cash flow. He believes the company can demonstrate increasing unit shipments, increasing margins, and the uptake of new products over next couple of quarters. He sees 25 cents fiscal 2005 (Feb.) earnings per share, and 29 cents fiscal 2006. He sets a $15 target.