Bellini contends that BEA remains an attractive takeover candidate, and that it could bring $14-$16 a share. She notes that the shares are now trading at about 4.1x enterprise value/’07 maintenance revenue, down from 5.2x just a few weeks ago, “due to potential LBO and M&A activity griding to a halt.”
But Bellini says she sees two potential catalysts for the stock in the next 6-9 months. Either the company will fix its “execution challenges,” she writes, or it will “allow someone to come in and improve shareholder value.” She concedes that a transaction “may seem unlikely given the current market environment,” but that BEA offers value to financial buyers “who could better leverage the company’s sizable customer base maintenance rev stream.”
Meanwhile, Bear Stearns’ John DiFucci raised his rating on the stock to Outperform from Peer Perform, with a $15 price target. “We believe if you can buy a software company at 3.5-5.1x EV/maintenance, you’re buying it for the fair value of the maintenance stream alone,” he writes. He says BEA is trading at 5.2x EV/maintenance, which of course is higher than Bellini’s calculation of the same measure. But whatever. He thinks a financial buyer would pay 7x maintenance revenue, or about $15 a share.
DiFucci lists other potential catalysts, including “rationalization of cost structure,” growth in China and a share buyback once it settles its ongoing stock-option backdating issues. He also notes that the company’s cash position is more than 20% of its market cap.