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Analyst reports: Wall Street bullish on BEA Systems

After smashing Wall Street's fiscal third-quarter estimates, software maker BEA Systems receives a round of applause from analysts--and heightened expectations for upcoming quarters.

After smashing Wall Street's fiscal third-quarter estimates, software maker BEA Systems received a round of applause from analysts--and heightened expectations for upcoming quarters.

San Jose, Calif.-based BEA, which generates the bulk of its sales from its WebLogic application server software, reported on Tuesday that fiscal third-quarter net income hit $8.2 million, or 2 cents a share. The company lost $1.9 million, or 1 cent a share, in the third quarter of 1999.

Sales in the quarter ended Oct. 31 almost doubled to $224 million, up from $126.5 million a year earlier. That soundly thumped the $208 million average forecast of eight analysts polled by First Call/Thomson Financial.

WebLogic software works like an operating system such as Microsoft's dominant Windows system. WebLogic lets companies share information among different systems in their networks and over the Internet.

Businesses ranging from mom-and-pop grocers to the automobile industry are increasingly relying on the Internet--and WebLogic software--to handle tasks from sales to procurement and inventory management. WebLogic has about 575 packaged software applications for sale, up from about 500 three months ago and 400 six months ago.

BEA trained more than 670 consultants how to use WebLogic in the third quarter and plans to train an additional 400 consultants per month. The goal is to have at least 4,000 trained consultants by the end of June 2001, and the company is on track to meet the schedule.

BEA executives predicted Tuesday that revenue will jump at least 45 percent in the fiscal year that ends in January 2002. That growth rate is below what the company reported for the first three quarters of the current fiscal year, when revenue rose 78 percent to $563.7 million from $315.2 million. But it's impressive given the recent expenditure slowdown among e-commerce companies and other technology businesses.

The growth clip impressed analysts, who on Wednesday issued a raft of overwhelmingly positive reports on BEA and sent the stock up nearly 7 percent in midday trading.

BEA traded at $75.69 Wednesday morning, up 6.7 percent from its closing price Tuesday. Unlike the majority of technology stocks, which have seen their stock prices battered since a spring market meltdown, BEA stock is up 116 percent so far this year. It has traded in a 52-week range from $11.45 to $89.50.

In a research report titled "Train Kept-a-Rollin," Thomas Weisel analysts Tim Klasell, Tom Ernst and Rob Breza raised revenue estimates for fiscal 2001 to $813 million from $776 million and earnings-per-share estimates to 24 cents from 22 cents. The trio also upped their 12-month target price 33 percent, to $100 per share from $75, and reiterated their "buy" rating.

They're even more bullish on fiscal 2002: They raised their revenue estimate to $1.2 billion from $1.09 billion and their earnings-per-share estimate to 35 cents from 33 cents.

"BEA continues to gain traction with its recently announced new products, WebLogic Commerce Server, WebLogic Personalization Server and WebLogic Collaborate Server," the Thomas Weisel analysts wrote in a note issued Wednesday morning. "We believe the traction in these new products is evidence of the company's strong brand equity and network effects taking shape and we look for this strong growth in new products to continue."

Dain Rauscher Wessels, First Union Securities, UBS Warburg, Credit Suisse First Boston and Wasserstein Perella reiterated "strong buy" ratings Wednesday. Lehman Brothers and Gerard Klauer Mattison reiterated "buy" ratings.

BEA's 12-month target prices ranged from $83 to $110 per share.