THE SPARK: Walter Pritchard lowered his rating for Red Hat to "Neutral" from "Buy" and cut his price target by $8 to $56.
THE BIG PICTURE: Raleigh, N.C.-based Red Hat Inc. sells the Linux open source operating system.
Recently, it has tried to boost growth by expanding its offerings outside of that system to areas such as storage and cloud computing through various acquisitions.
Over the past year, the company's shares have gained about 4 percent.
THE ANALYSIS: Pritchard said it looks like Red Hat may be getting less of a boost from its partners, which could send billings growth below 15 percent for the first time since 2008, while at the same time sales hiring levels appear to be below seasonal norms.
In addition, there is no big spark on the horizon that could send the shares higher, as many of the company's non-Linux ventures have failed to gain traction, the analyst said. "The long-term story of Red Hat becoming the purveyor-of-choice for open source technologies to the enterprise is still very much intact," Pritchard wrote. "However, at some point we need to see evidence that this long-term driver can have a positive impact to medium-term growth."
THE SHARES: Down $1.96, or 3.7 percent, to $51.18 in heavy midday trading, after dropping as low as $50.55 earlier in the session. Over the past 52 weeks, Red Hat shares have traded between $46.34 and $62.75.