Veritas bucks trend, affirms estimates

Veritas Software pulled off a rare feat Tuesday: The company said it's confident about its outlook for the quarter and growth projections for the year.

Shares in the Mountain View, Calif.-based company were up $7.19, or 12 percent, to $67 Tuesday on the news, announced in a mid-quarter conference call late Monday.

Veritas (Nasdaq: VRTS), which makes software for storage management, said it's confident with prior 2001 guidance despite the deteriorating macroeconomic environment, and its first-quarter continues to track ahead of plan. That's an unusual accomplishment in these times, when economic trends have battered other storage vendors such as EMC (NYSE: EMC), Brocade (Nasdaq: BRCD), Network Appliance (Nasdaq: NTAP) and Emulex (Nasdaq: EMLX), as well as leading software providers such Oracle (Nasdaq: ORCL).

Specifically, management said it remains comfortable with the current consensus forecast of $380 million to $385 million in first-quarter revenue, and earnings of 20 cents a share, with an operating margin of about 31 percent.

It also appears that February, which is typically the biggest month for revenue in the quarter (contributing around 40 percent of the total), was on track, and that the March quarter was tracking ahead of plan. The company also plans to meet its estimate for 2001 sales growth of between 45 percent and 50 percent.

In light of Oracle's shortfall, Veritas officials eased investors' concerns over involvement in large deals, which led to Oracle's sudden warning right at the end of its quarter. Veritas pointed out that its deals are substantially smaller than many software companies, which should insulate it from risks of transaction delays, reductions or cancellations.

The company said that while it has yet to see any significant negative effect of the slowing economy, it is closely monitoring all aspects of the business for any signs of weakness.

The news from Veritas was greeted with positive reaction from analysts on Tuesday.

Prudential Securities David Breiner maintained a "strong buy" but reset his price target to "a more realistic" $110 from $175.

Breiner went to lengths in his research note to explain the reasons for Veritas' insulation from the economy given the fact that "this upbeat assessment is difficult for investors to fathom given the crummy backdrop."

First, Veritas' software helps customers dealing with spiraling storage costs. It's a strong benefit in a recession, Breiner said. Secondly, the company has "baked substantial conservatism into its revenue forecast model," and thirdly, Veritas remains in "the steep phase of its expansion lifecycle," with plenty of room for growth across products, platforms and geographies, he said.

Goldman Sachs analyst Anne Meisner agreed that the company has plenty of headroom for growth that will allow it to continue bucking economic trends.

Meisner said that a large international revenue opportunity, particularly in Europe and Japan, along with room for more penetration into the untapped market of Hewlett-Packard (NYSE: HWP) and IBM's (NYSE: IBM) installed servers and new product introductions, should all continue to help insulate the company from the macroeconomic slowing.

Robertson Stephens analyst Dane Lewis sounded a more cautious note while reiterating his "long term attractive rating."

"While we are impressed with Veritas' ability to execute in a weak macro environment, we remain cautious until the outlook for IT spending improves," Lewis wrote. But he added that Veritas is "the dominant provider of storage management," and said he "looks to re-engage the name when industry visibility improves."