We reiterate our Neutral recommendation on
Compuware Corporation
(
CPWR
). The company's cost effective initiatives and incipient
buy-back activities are likely to partially neutralize the effects
of the weak economic condition and ominous competition prevailing
in the industry.
Compuware's superior end-to-end Business Service Delivery
approach helps IT organizations to move from a reactive and
operations-oriented process to one that is proactive and
business-driven, across both the distributed and mainframe
environments.
In addition, the company is expected to achieve a leadership
position within the industry through its advanced Gomez offering,
especially designed for cloud-related services and Big Data
trends.
The company's primary objective is to provide user-friendly,
technologically advanced services to its clients in IT
organizations through its improved software as a service (SaaS),
professional and application services portals. The company's
Application Performance Management (APM) and Covisint solutions
segments are considered as its key growth drivers. In the first
quarter of fiscal 2013, the APM segment's revenues surged 28%
annually, led by the dynaTrace acquisition while Covisint recorded
a revenue growth of 27%.
One aspect, which has forever been an integral part of
Compuware's total approach, is its desire to return optimum value
to its shareholders through buy back activities. During the first
quarter of fiscal 2013, Compuware spent nearly $15.4 million in
buying back of nearly 1.7 million shares of its common stock.
Hence, based on the company's existing trends we can expect similar
moves on the part of it in the upcoming quarters as well.
The company's administrative and general expense in the first
quarter of fiscal 2013 was $39.7 million down 4.3% year over year,
indicative of its cost control measures. Huge cost reduction
strategies are expected to post healthy operating margins of up to
26.5% in fiscal 2015 from 15.0% in fiscal 2012.
Although Compuware's intent and advances towards meeting
long-term goals are remarkable, we are, however, concerned about
the intensely competitive landscape. According to management, the
company competes with more than 40 firms in one or more of its
offerings. Rivals include
BMC Software Inc.
(
BMC
),
CA Technologies
(
CA
),
International Business Machines Corporation
(
IBM
).
Additionally, the majority of the company's software products
are designed for use with IBM and IBM-compatible mainframe
computers. As a result, the majority of revenue from software
products depends on the customers' continued use of IBM and
IBM-compatible mainframe products.
Compuware generates a substantial portion of revenue from
countries outside the United States. Hence, as the company
establishes its operations internationally; it is highly exposed to
foreign currency fluctuation; hurting financials.
Hence, until the situation ameliorates and a brighter picture
appears on the scene, we consider it wise to maintain a sideline
stance on Compuware. In the short run, we have a Zacks #4 Rank on
the stock, which translates into a short-term 'Sell' rating.
BMC SOFTWARE (BMC): Free Stock Analysis Report
CA INC (CA): Free Stock Analysis Report
COMPUWARE CORP (CPWR): Free Stock Analysis
Report
INTL BUS MACH (IBM): Free Stock Analysis Report
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