Want to take a second look at a former high-flying tech stock?
How about CA, the information technology giant, whose slow-and-steady growth is occurring mostly under the radar of most Wall Street observers?
But that might not last too long, especially as CA’s most recent quarterly financials, released last Friday, said that the company would beat analyst expectations in terms of this year’s revenues and earnings. For the last quarter, CA posted an 18% increase in revenue to $1.09 billion. Net income was $71 million and earnings-per-share, excluding items, came in at 22 cents. Analysts were expecting revenue of $1.09 billion and EPS of 28 cents.
CA had said that it expected between $4.5 billion and $4.6 billion in revenue for the ar ending March 2009. That’s also ahead of Wall Street’s view, which came in at $4.42 billion in revenue, according to Thomson Financial, which polls analysts every quarter.
For all the good news with CA, the company is also displaying a nagging habit of shooting itself in the foot. Says Jefferies analyst Katherine Egbert, the first-quarter results were “solid” but the company’s progress is being slowed down by one time charges that CA is posting, mostly due to acquisition and restructuring charges cost. Egbart estimates that CA lost 9 cents per share last quarter as a result of the one-time charges.
"While we like the direction CA is heading, it is doing so in a slow and steady manner making it difficult for us to assign much of a premium to the stock," Egbert said. She currently has CA at a “hold” call with a $25-per-share price target (the stock is trading at that level right now – but shares of CA have traded between $20.21 and $28.11 in the last 52 weeks).
A bigger analyst report, this one from Gartner Group lends even more weight to CA’s case. In it, the company’s fast-selling CA Records Manager, part of CA’s comprehensive Information Governance solution (it automates record-keeping processes to help users gain faster access to information, save time and money and facilitate compliance with regulatory, legal and business requirements) should send CA revenues even higher this year.
Gartner said the worldwide records management market to be approximately $400 million in software license and maintenance revenue in 2007, an increase of 30% from 2006. This market is forecasted to have a five-year compound annual growth rate (CAGR) of 25% between 2008 and 2013.
CA, with Records Manager, is well positioned to capture a big slice of that market. This from the Gartner report: “CA Records Manager is the first records management application to be certified by the United States Department of Defense (DoD) against version 3 of the U.S. DoD 5015.2 standard, which provides for greater data security and integrity. According to Gartner, The DOD 5015.2 has become the de facto benchmark for records management products, particularly in the U.S.”
With company’s making room (in admittedly tight budgets) for data security, could CA Records Manager propel CA’s stock to $30 and beyond? I think so – but it might take the summer to do it.