- Jefferies lowers their target to $20 from $23 but keeps Buy saying the F3Q07 license miss is bad, given management's bullish tone and the run in the stock. They think it's mostly an execution slip in a weakish North American applications market and that the story is not broken.
Just like F2Q06, they think this miss here is more down to poor execution than a fundamental change at the company. The only incremental change is that some weak competitors are now in stronger hands (AGIL/ ORCL) and their recent industry checks in North America suggest it is the weakest of the three major Geos. Given the positive feedback on products from PMTC customers and partners, they do not think the story is broken.
Near-term problem for the stock is management's bullish tone and recent competitor upgrades. Management raised FY07 cash flow guidance one month ago and talked bullishly regarding their business up until the quiet period. The stock is up from $18 just 6 weeks ago, and Jeffco expects to retrace all of that now.
- Deutsche Bank spoke with management and provides the following details: 1) weakness was concentrated in the Desktop segment [MCAD]. Their checks indicated the channel was on-track - suggesting that several larger deals were pushed out; 2) some competitive pressure during the quarter, but did not result in losses - more of a timing issue; 3) large deal ($1m+) activity was comparable with F2Q, but was below plan. Again, seen as a timing issue more than a material slow down in demand; 4) management remains committed to margin expansion and is implementing cost control measures this quarter. Mostly discretionary spending, but some headcount reduction likely.
Shares were trading down 20%+ in after-market trading - an overreaction in DB's view given strong industry fundamentals and Co's competitive positioning. Target goes to $23 from $24 but Buy is maintained.
Notablecalls: Kaufman downgraded the stock this morning to Hold from Buy, but I think the stock's a strong bounce candidate.
The most amazing part of PMTC's miss was that Goldman Sachs added the stock to their Americas Buy List on June 26 saying their checks into Parametric channel indicated the company was benefiting from strong sales in the June quarter and its outlook into September, its seasonally strong 4QFY07, remained robust. The firm even upped their estimates for the year.
The people at Goldman are generally not stupid and are rarely wrong with their checks. So to me this indicates the shortfall is not due to a slow down in demand but rather due to pushouts of couple of larger deals. Sloppy execution? Yeah, possibly. That's generally something the management can and will address swiftly.
Ah, and we have Needham out with a downgrade.