BEA Stock Flops Post-Earnings On Weak Licensing Growth

Nov.16.06 | About: BEA Systems (BEAS)

BEA Systems (BEAS) shares are tumbling today on a weak reception to last night’s fiscal third quarter earnings report. The main issue seems to disappointing growth in new licenses. Several analysts downgraded the stock; others sliced estimates; but a few die-hard bulls think the sell-off which started after hours last night offers a buying opportunity. Here’s a rundown:

  • Robert Stimson,W.R. Hambrecht: Our investment thesis has always been predicated on a re-acceleration in license revenue growth resulting from BEA Systems’ new SOA [service oriented architecture] product initiatives. Given the quarter’s lukewarm license revenue growth results, we believe license revenue growth has paked, and the potential for further multiple expansion is limited in the near term…We are downgrading our rating on BEAS shares from a Buy to a Hold.
  • Kash Rangan, Merrill Lynch: Downgrading to Sell [from Hold] as organic growth slows…Oragnic growth rate is decelerating,with [third quarter] license growing only 2%…we estimate organic growth of only 1% in [the fourth quarter]…BEA growth is being eclipsed by IBM (NYSE:IBM) and Oracle (NASDAQ:ORCL), and it is likely losing market share to these two heavyweights. IBM and Oracle drove much higher Q3 growth, 30% and 56%, respectively, in their middleware businesses.
  • John DiFucci, Bear Stearns: These results do not coincide with the incremental spend that many anticipate due to SOA, nor does it support the value attributed to BEAS stock…We continue to rate BEAS Underperform…the stock is fairly valued at $9-$10.
  • David Hilal, FBR: While the business has stabilized, we are not seeing meaningful license growth…We maintain our Market Perform rating, as we believe competition remains tough and end-market demand is tame.
  • John Reilly Walsh, Citigroup: Bottom line is BEAS’ fundamentals remain sound, and its leadership status in the SOA space dictates the company should disproportionately benefit from multi-year SOA adoption projects many enterprises are beginning to undertake. We reiterate out Buy rating.

BEA shares today are down $2.70 at $12.99. That’s a pretty dramatic drop; but keep in mind that the stock is still up 38% for the year.

See: BEA Systems F3Q07 (Qtr End 10/31/06) Earnings Call Transcript