Earnings Preview: Lawson Software

| About: Lawson Software, (LWSN)

Lawson Software, Inc. (NASDAQ:LWSN) is scheduled to report fiscal 2010 third quarter results on April 7, 2010.

Lawson provides enterprise resource planning (ERP) software solutions and professional services to mid-market enterprises in the health care, retail, public and services industries. The company derives its revenue from software license fees, customer support and maintenance fees and consulting fees.

Management expects revenues between $174 million and $178 million in the third quarter of fiscal 2010. Maintenance revenues are expected to be negatively impacted by $1 million on a year-over-year basis.

Earnings per share are expected around 7 – 9 cents. This excludes approximately $11 million of pre-tax expenses for amortization; non-cash interest expense and non-cash stock-based compensation. The guidance does not include any contribution from recently acquired Healthvision. Currency fluctuations are estimated to negatively impact the bottom line by one cent.

Healthvision Acquisition

The company recently acquired Healthvision Solutions, Inc. for $160 million. Based in Dallas, Healthvision is a privately-held company providing integration and application technology and related services to hospitals and large healthcare organizations.

Healthvision’s Cloverleaf product is used by 33% of North American hospitals and 40% of large integrated delivery networks. Healthvision has 800 customers, including 200 joint customers with Lawson, and its products are used in more than 3,000 healthcare facilities around the world.

The healthcare focus is predominantly in the United States. There are five strategic markets that the company targets – fashion, food and beverage, equipment services and rental management, healthcare, and public sector. Each of these markets is categorized as either an M3 industry or an S3 industry. M3 represents organizations that make, move, or maintain goods for their customers, and S3 represents organizations that are labor-intensive and must staff teams and source materials so that they can serve their customers.

Heathvision expands Lawson’s addressable target market in the US that will grow from $2 billion to $4.7 billion. The acquisition also provides an opportunity for revenue synergy through cross-sell, which should further drive growth.

The acquisition is expected to add approximately $60 million – $70 million to the top-line and 6 – 7 cents per share to the bottom-line.

Estimates have not moved much in recent times for the stock as economic recovery is not expected to be strong and swift. For fiscal 2010 (ending May), one of the eight analysts covering the stock raised his estimate in the last 30 days. There was no revision in the opposite direction.

For fiscal 2011, two of the eight analysts covering the stock raised their estimates with no revision in the opposite direction.

The quarterly estimates have been static.

Magnitude Consensus Estimate Trend

The current Zacks Consensus Estimate for 2010 is 34 cents, with an upside potential of 5.88%.

For fiscal 2011, the current Zacks Consensus Estimate is 43 cents, up one cent in the last 30 days and signaling a 26.18% year-over-year growth in the bottom-line.

In the last quarter, Lawson fell short of the consensus estimate by 12.50% but met the consensus estimate in the first quarter. On an average, Lawson has come ahead of the Zacks Consensus Estimate by 9.06% in the last four quarters.

The current Zacks Consensus Estimate for the third quarter is 8 cents.

Neutral on Lawson

Business conditions in the U.S. and Europe are starting to improve but the recovery is likely to be choppy. Management expects to see a broad improvement in business spending in calendar 2010. Organic growth is expected to come from vertical markets while the company also sees opportunity for growth through strategic acquisitions.

Our long-term recommendation for Lawson is NEUTRAL which means the stock will perform roughly in line with the broader market.