It didn’t take long for CA to pay the price for the lower earnings outlook that popped up among Wall Street analysts last week.
The stock fell 3% today after Jefferies analyst Katherine Egbert downgraded CA to “hold” from “buy”, and lowered her target price for the computer giant’s stock to $18 from $20. Egbert was particularly down on the company’s financial picture, saying she anticipated lower earnings and revenue for the 4th quarter.
You can’t blame her. CA hasn’t been projecting a rosy image of late. Last week CA’s CEO came out and said that it would eliminate approximately 3,100 positions since the inception of the fiscal 2007 restructuring plan; that global facilities consolidations and other cost reduction initiatives will be part of restructuring plan; and that total pre-tax restructuring charges in connection with the fiscal 2007 restructuring plan of $345 million.
CA has lost some foreign bookings, as well. That’s problematic considering that CA gets
Roughly 80 cents on the dollar for renewals, compared with an industry standard rate of about 90 cents. Egbert lowered her earnings estimate for the quarter to 25 cents per share from 28 cents and her sales estimate to $965 million from $1.06 billion. Analysts polled by Thomson Reuters are expecting, on average, a profit of 29 cents per share on sales of $1.05 billion.
"The restructuring means CA might not have closed (fiscal 2009) well, forcing (management) to seek new ways to reduce costs," Egbert wrote.
Egbert added that the lower estimates reflect “weak renewal pricing a substantial FX headwind.”
Meanwhile, Sun Microsystems shareholders might be ready to pull a Yahoo. That after Sun’s stock slid 22.5 percent after it rejected a $7 billion buyout bid from IBM. Inside sources said that while negotiations could resume, IBM seems willing to do what Microsoft did to yahoo and stock to its offer-per-share price ($9.40) and not up the ante.
That led Sun’s stock price to fall to below $7 per share in Monday trading, while IBM’s stock was still solid at $100 per share. Analysts seem unanimous that Sun should have taken the deal – and that it better get back to the bargaining table.
"It looks like they're in somewhat of a dilemma. It's (Sun's) operational history of the past four to eight quarters doesn't seem to be working well for them, nor have their efforts to sell assets," Tom Smith, analyst at S&P Equity Research, told the Associated Press. He downgraded Sun's shares to "sell" from "hold" and lowered its 12-month price target to $6 from $9.50. Smith thinks this is the best deal that Sun can count on – otherwise it might have to sell its company off in chunks and pieces – a move that would invariably net Sun a worse deal than it could have gotten from IBM.