Compuware Corporation (CPWR): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Compuware reported unimpressive fourth-quarter 2014 results. Earnings per share were at par with the Zacks Consensus Estimate while revenues missed the same. Management also slashed its fiscal 2015 revenue guidance. We believe that the ongoing restructuring plan will benefit the company's profitability, going forward. Moreover, the divestitures will help the company to focus on its core business over the long term. Additionally, Compuware's innovative product pipeline, initiatives to reduce costs and new program wins will boost profitability. Further, the recent recognition of Compuware APM as the market share leader by Gartner is a major positive. However, overdependence on IBM for technology may rationalize growth prospects to a certain extent. Furthermore, the intensely competitive landscape is expected to remain a major headwind going forward. Thus, we reiterate our Neutral recommendation and set a price target of $10.00.

Overview:

Founded in 1973 and headquartered in Detroit, MI., Compuware Corp (CPWR) provides software solutions and services that help in managing distributed web-based applications and mainframe systems. The company delivers its software solutions both on-premise as well as through a software-as-a-service (SaaS) model. It also provides professional technical services related to mobile application development, performance engineering and legacy system modernization.

Compuware reported revenues of $720.8 million in fiscal 2014. The company reports in the following three business segments: Application Performance Management (APM), Mainframe Productivity and Performance (Mainframe or "MF"), and Application Services ("Covisint or "AS"). Segment details are as follows:

The APM segment is involved in maximizing the efficiency of web, non-web, mobile, streaming and cloud application related services.

Mainframe Productivity and Performance solutions (MF solutions) are especially designed for organizations, which require high developer productivity, and enhanced service quality at lower costs.

Application Services (Covisint) primarily enables customers to securely share and integrate vital

information and processes across users, business partners, customers, vendors and suppliers.

The company's Software solutions (comprising of APM and Mainframe) contributed 86.5% of revenues in 2014. APM contributed 45.4% of revenues in 2014 while Mainframe chipped in with a 41.1% share. The remnant 13.5% of net revenue in 2014 came from the Application Services segment.

In the fourth quarter of fiscal 2014, Compuware successfully completed the divestiture of its Changepoint, Professional Services and Uniface business segments to Marlin Equity Partners.

Compuware faces significant competition in most of its operating segments from the likes of International Business Machines Corp, BMC Software, CA Inc., Hewlett-Packard, Accenture and Computer Sciences Corp.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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