On Tuesday, September 4, analysts at Robert W. Baird and Evercore Partners upgraded shares of INFA. Robert W. Baird raised its rating on the stock from a Neutral to an Outperform and set a $40.00/share price target and Evercore raised its rating on the stock from an Equal Weight to an Over Weight. An analyst upgrade can mean great things for a stock, and in the wake of a dual upgrade that took place on September 4, I wanted to highlight some of the positive catalysts behind my decision to establish a position in Informatica (INFA).
Informatica, which is based in Redwood City, California, provides enterprise data integration and data quality software and services worldwide. The company offers Power Center, which integrates data virtually from business systems in various formats and delivers that data throughout the enterprise; Power Exchange that enables information technology organizations to access the sources of enterprise data without having to develop custom data access programs; and Data Services for finding, integrating, and managing data in the enterprise. It also provides Data Quality, which delivers data quality to stakeholders, projects, and data domains; Master Data Management that offers consolidated business-critical data; and B2B Data Exchange software for multi-enterprise data integration.
In my opinion, the larger the profit or operating margin the more attractive the company, and when those numbers outpace the competition, the company is certainly more attractive to potential investors. In the last 12 months, INFA has demonstrated a profit margin of 14.33% and an operating margin 20.23%, which outpaced both QLIK Technologies, Inc. (QLIK) and MicroStrategy, Inc. (MSTR), by a fairly wide margin. It should be noted that QLIK posted a profit margin of 2.08% and an operating margin of 5.29% and MSTR posted a profit margin of 3.65% and an operating margin of 3.47% over the last 12 months.
Comparable Returns on Assets & Equities
Over the last four quarters, INFA has demonstrated very respectable returns on both assets and equities and if such returns can continue, this catalyst will certainly contribute to the growth of the company's stock. In the last 12 months, INFA has demonstrated a return on assets of 7.56% and a return on equity of 11.64%, which when compared to other competitors clearly outpaces both Salesforce.com (CRM), which demonstrated a return on assets of -0.83%% and a return on equity of -2.24%, and QLIK, which demonstrated a return on assets of 3.85% and a return on equity of 4.04%.
Comparable EPS Trends
During the past year, INFA has posted some very positive EPS results, not only in terms of surpassing analysts' estimates, but especially when it comes to outperforming the competition. Over the past four quarters, INFA has surpassed EPS estimates by an average of 5.70%, whereas industry competitor Oracle (ORCL) has only managed to surpass estimates in three of the last four quarters by an average of 3.15%, if you figure in the company's miss during the November 2011 quarter.
INFA, in my opinion, is one of the better companies within the technology, and specifically the software as a service (SAAS) sector. If the company can continue to outpace the competition when it comes to both margins and returns, we could easily see INFA surpass the $43.50/share level. One of the key catalysts for INFA moving forward will be global sales, if either North America or Europe continue to demonstrate economic weakness, we could see B2B spending decrease and directly hinder the growth of INFA in the next 12-24 months.
Disclosure: I am long INFA.