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Merrill Lynch’s Alan Cooke Friday morning raised his rating on Lawson Software (NASDAQ:LWSN) to Buy from Neutral, and raised estimates.

The company, he says, “has made significant changes - new sales people and executives, product refreshes, major partnerships, cost restructuring and stock buybacks - which should seed organic license growth of about 29% in FY ‘08, and double the operating margin to 13%.”

Cooke says that Lawson’s recently announced $240 million convertible offering is “a positive step towards enhancing shareholder value….[and] validates our thesis that an optimized capital structure helps free up cash for buybacks and acquisitions.” He notes that Lawson used some of the proceeds to buyback $48 million in stock. “We think there is significant revenue and margin potential in Lawson’s acquisition of Intentia, and that it has worked through the majority of integration issues,” he writes.

His EPS estimates go to 17 cents a share from 16 cents for fiscal 2007, and to 38 cents from 32 cents for fiscal 2008.

Cooke contends the company is “undervalued relative to its peers,” trading at 13.5X calendar 2008 enterprise value/free cash flow, versus 15.1x for other enterprise software companies. His price target on the stock is $11.

Friday morning, Lawson was up 21 cents at $9.28.

LWSN 1-yr chart
lwsn chart

Source: Lawson Software Makes "Significant Changes"