2009 Earnings Looking Good for Several Software Companies

by: Zacks Investment Research

Despite the pullback in overall business spending, 2009 earnings estimates for several software companies are being revised up. The overriding theme among the beneficiaries of the raised forecasts is cost-savings and/or enhanced productivity.

In other words, brokerage analysts believe those software companies that can help customers control costs and improve efficiency should be able to weather the current economic storm. These companies include Red Hat (NYSE:RHT), ArcSight (ARST), Progress Software (NASDAQ:PRGS), Pegasystems (NASDAQ:PEGA), Open Text (NASDAQ:OTEX), Rightnow Technology (RNOW) and SourceForge (LNUX).

Confirming the optimism have been recent, bullish earnings reports from RHT, ARST and PRGS.

Double-Digit Growth for RHT

Red Hat recently reported a 22% increase in revenues for its fiscal third-quarter, which ended in November. Compared to the prior quarter, total revenues increased 1% and subscription revenues remained flat.

The sequential numbers are noteworthy because they imply that the company was able to maintain its revenue stream even as the economy worsened. CEO Jim Whitehurst credited his company's open source platform for the good numbers. RHAT specializes in Linux, which is said to have lower cost than competing operating systems.

On an earnings basis, RHT generated a profit of 24 cents per share, 11 cents better than brokerage analysts had forecast.

The positive surprise caused 11 of the 15 covering brokerage analysts to raise their full-year profit projections. The revisions led to a 7-cent increase in the consensus earnings estimate, which now stands at 63 cents per share.

ArcSight Beats

Last month, ARST said fiscal second-quarter revenues rose 33% to $32.8 million. Earnings reached 6 cents per share versus a loss of 3 cents a year prior. Brokerage analysts had forecast the company to break even.

The company said revenues should rise 16% to 23% in the third quarter, but did not update its full fiscal-year guidance, citing limited visibility. The cautious outlook did not deter 3 of the 5 covering brokerage analysts from adjusting their full-year estimates, however. The positive revisions led to a 4-cent increase in the fiscal 2009 consensus earnings estimate to 12 cents per share.

ArcSight provides compliance and security management solutions. The necessity of companies and federal agencies to continue investing in such software and services helped to shield the company from the brunt of the economic downturn.

Progress Software Guides For Continued Growth

Fiscal fourth-quarter revenues for Progress Software rose 2% to a record $139 million, led by a 4% increase in software license revenue. PRGS provides software platforms that aid in the development and management of business applications software.

Earnings, reported on a GAAP basis, declined to 16 cents. The numbers were adversely affected by a purchase accounting adjustment and other acquisition and amortization expenses.

PRGS believes it can achieve revenues of $532 million to $542 million in fiscal 2009, an approximate 4% increase over fiscal 2008. The sole covering brokerage analyst raised his fiscal 2009 earnings estimate to $1.60 per share in response. The previous forecast called for earnings of $1.22 per share.