We reiterate our Neutral recommendation on
) post the second-quarter 2014 results.
Why the Reiteration?
Although CA reported better-than-expected second-quarter
results, year-over-year top-line growth was disappointing.
Despite a rise in Mainframe revenues, Enterprise solution segment
revenues were affected by lower-than-expected new product sales
which were primarily responsible for the revenue
CA is gaining traction in the Mainframe Solutions, and
Services segments. During the second quarter, CA's mainframe
revenues were aided by higher sales of new products and mainframe
We remain upbeat as CA's cloud expansion and restructuring
initiatives remain on track. A decent renewal rate, modest cash
position and share repurchase activities also appear encouraging.
The company's endeavor to return cash to its investors in the
form of dividend payments also boosts investors' confidence.
Apart from this, bookings growth remains robust, supported by
both North American and International bookings. The company is
also witnessing an increase in license wins.
However, increasing competition from the likes of
) coupled with the European exposure remain concerns. A tepid IT
spending environment is another factor that could impact CA's
results, going forward.
Moreover, the costs related to the company's rebalancing plan
will pressurize margins in the near term. Although, CA's plan of
redirecting the savings from the current restructuring
initiatives to market its products and emphasize on brand
recognition is a positive factor, execution issues and
lower-than-expected sales despite the rebalancing initiative will
have a negative impact on the company's results.
Currently, CA has a Zacks Rank #3 (Hold). A better-ranked
stock in the technology sector is
) with a Zacks Rank #1 (Strong Buy).
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