Is Business Objects the Next BI Buyout Target?

Business Objects SA (BOBJ), a leading provider of business intelligence software, is widely considered a possible acquisition target, with Oracle (ORCL) and SAP (SAP) among the potential suitors.

In the meantime, it has been on a buying binge of its own, gobbling up three companies in 2006 and acquiring two more companies, Cartesis and In-xight, in 2007.

The company, which has more than 5,000 employees, helps organizations use their data to gain more insight into their businesses and improve performance. The company's main product, a business intelligence suite called BusinessObjects XI, allows users to manage and measure performance and gives them a comprehensive tool for planning, reporting, query and analysis, and enterprise information management.

Business Objects has dual headquarters in San Jose and Paris and has more than 43,000 customers worldwide, including more than 80% of the Fortune 500.

Business intelligence software is a hot area, and competition is keen. Rivals in the space include Cognos (COGN), MicroStrategy (MSTR) and Hyperion Solutions, which recently was bought by Oracle for $3.3 billion.

Business Objects has annual revenues of $1.3 billion, about 70% more than Hyperion, but currently trades at only a 18% premium to what Hyperion fetched. Hyperion was taken out for about 4.3 times annual sales.

Business Objects, meanwhile, has a market cap of $3.88 billion and trades at a little less than three times sales. It would be worth about $58 a share if it was valued like Hyperion. On that basis, it looks like a good buy here at 40.50 or less with a sell stop at 37.79.

First-quarter revenues reported April 25 grew 20% to $334 million. License revenues were up 9% to $137 million, while services revenues, including maintenance and global professional services, jumped 29% to $197 million.

Earnings were $0.06 per share, or $5.58 million, after including a legal contingency reserve of $26 million, an impact of $0.15 per share. That's down from first-quarter 2006 earnings per share of $0.13, or $12.34 million.

The company, which boasts a 5-year sales growth rate of almost 25%, expects to report second-quarter earnings of $0.21-$0.24 per share and revenues in the range of $345-$350 million.

Business Objects, one of 50 stocks in my Coolcat Tech Bubble Survivors Index established last year, was founded in 1990 and came public in September 1994. It split its stock 2-1 in both May 1996 and January 2000 and added a 3-2 split in March 2001.

The stock hit a peak of 150.88, or 226.32 when adjusted for the last split, in March 2000. It then crashed with the rest of the Nasdaq, bottoming at 8.96 in October 2002. Its rebound high since then is 43.57 in February 2006.

The stock closed Wednesday at 40.50 and has more than doubled off its July 2006 low of 19.01. BOBJ is about 2% off its 52-week high of 41.48 set May 31. Its 50-day moving average, currently at 39.16, has provided support twice in June, with the last bounce happening Friday.

BOBJ 1-yr chart

Disclosure: none