J.P. Morgan Securities Slams Red Hat Stock With Downgrade Before Earnings

RHT is clinging to its 19% year-to-date lead

Managing Editor
Sep 18, 2018 at 2:06 PM
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Shares of Red Hat Inc (NYSE:RHT) are slightly lower in afternoon trading after J.P. Morgan Securities dealt another bear note in today's trading, downgrading the software concern to "neutral" from "overweight" and slashing its price target to $150 from $160. From a broader viewpoint, 10 of 18 covering analysts sport "strong buy" ratings on the stock. Plus, this bear note comes just one day before Red Hat is scheduled to report its second-quarter earnings.

RHT is down 1% at $143, giving up a short-term floor at the 50-day moving average. This comes after the equity was firmly rejected at the 80-day moving average. Despite its recent underperformance, Red Hat stock remains up 19% year-to-date.

Daily Chart of RHT with 50 and 80MA

Red Hat is scheduled to report earnings after the market closes tomorrow, Sept. 19. Digging into its earnings history, RHT has closed higher the day after the company reports in five of the past eight quarters. However, the stock suffered a steep 14.2% drop after reporting in June, while overall the shares have averaged a 7.1% move the day after earnings over the last two years, regardless of direction. This time around, the options market is pricing in a larger-than usual 12.5% move for Thursday's trading.

In the options pits, traders have been leaning bullish in recent weeks. This is per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows a 10-day call/put volume ratio of 1.96, ranking in the 81st annual percentile. This indicates that calls have been bought over puts at a faster-than-usual clip.

Echoing this is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.37, which ranks in the low 16th percentile of its annual range. This means short-term traders have rarely been more call-heavy on Red Hat in the past year.


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