Logility a Buy Ahead of Earnings

| About: Logility Inc. (LGTY)

Logility (LGTY) is a software company; it is a provider of supply chain solutions to companies. The company is majority owned by American Software (NASDAQ:AMSWA), so the float and trading volume is low.

Market cap: $87 million; EV: $44 millon

Next earnings report due: This morning, Thursday, June 19.

The last time LGTY reported earnings in early March (see conference call transcript), the stock collapsed from $10 to $6. The company missed estimates for revenues and EPS. It blamed a slowing economy. Exacerbating the situation was a charge the company took for writing off capitalized software.

While I am not a fan of companies treating write-offs as one time charges of no significance, I should point out that LGTY’s regular D&A is actually higher than their spending on capex and capitalized software. The recent write-off has the positive effect of decreasing future D&A, so optically, results are going to be positively affected.

The company is projected to earn $0.45 in the FY ending Apr ’08, and $0.63 next year. Part of the increase is due to the absence of the write-off that the company took this year.

At $6.70, the stock is trading at 11x forward EPS and 9x trailing FCF. It has $3 of cash per share. For the most part, it is hoarding the cash it is generating, although a small amount is being spent on buying back stock. In my opinion, the company should significantly increase the pace of buybacks as it is highly accretive at the current share price.

Fair value $10 (15x calendar ’08 EPS estimate of $0.60 + extra $1 for cash balance).

Also check out my other piece today recommending GRB as a short.

Disclosure: Author has a long position in LGTY