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2HRS2GO: Manugistics comes a bit closer to Earth

COMMENTARY--A good quarter and relatively decent outlook mean nothing when you're already valued so much more than your peers.

You could almost hear the sighs of relief during the fourth-quarter conference call of Manugistics (Nasdaq: MANU) yesterday. The maker of supply-chain management software met consensus estimates and stuck to its earlier forecast for the current fiscal year, and in an environment where most companies have been cutting estimates, Manugistics' reiteration was enough to please analysts. Their research notes today reflect their general satisfaction; no one downgraded the stock.

Yet shares of Manugistics fell more than 7 percent this morning, after trading higher in after-hours activity last night. The stock recovered a bit by this afternoon, but it remained down more than 4 percent from yesterday's close. The overall decline isn't a surprise when you compare Manugistics to its peers.

Some of this morning's reaction is the usual selling on the news. Manugistics shares ran up ahead of the fourth-quarter report. The stock gained more than 41 percent last week. Clearly traders expected a solid report. It helped that Manugistics issued a note of confidence earlier this month.

Although no brokerage firms downgraded Manugistics today, no one upgraded it either. And in the absence of any new reason to buy, Wall Street tends to sell technology stocks these days.

All the congratulatory notes flowing from research firms this morning might have led you to believe that Wall Street would embrace Manugistics, but at least one analyst correctly made a calmer assessment. "Good quarter, but already in the stock," declared the headline of today's Manugistics note from Prudential Securities analyst Douglas Crook.

He repeated an "accumulate" rating on Manugistics and cut his price target to $31 from $50. Wrote Crook: "We continue to view MANU as a good defensive alternative in the difficult broader market. However, given the current valuation...we do not see any near-term catalysts."

That valuation remains the catch for Manugistics. Even after sliding in today's session, the stock remains expensive compared to its peers.

At roughly 10:30 a.m. ET, Manugistics carried a forward multiple of 96, meaning the stock price was 96 times higher than First Call's consensus estimate of 26 cents per share for the next 12 months. That's not only a much higher valuation than the broader market, but also far ahead of Manugistics' peers in the already-expensive niche of supply-chain management and enterprise-planning software. Consider:

• i2 Technologies (Nasdaq: ITWO), the company most often mentioned as a Manugistics' rival, but trading at a much lower forward multiple of 43;

• SAP (NYSE: SAP), with a forward multiple of 49;

• J.D. Edwards (Nasdaq: JDEC), weighing in at 44 times forward earnings;

• PeopleSoft (Nasdaq: PSFT), at 40; and

• Oracle (Nasdaq: ORCL) at 31;

Granted, they're not exactly comparable. For instance, Oracle recently reported disappointing financial results; besides, the company still gets most of its revenue from the more mature database market, rather than enterprise applications.

Manugistics boosters would no doubt also point to the company's faster growth rate. First Call consensus currently predicts 117 percent earnings growth for Manugistics in its current fiscal year, compared with 29 percent for Oracle, 35 percent for i2, 81 percent for PeopleSoft and 22 percent for SAP.

Analysts predict a 425 percent increase in J.D. Edwards' profit over the next 12 months, but its previous year was so horrid that it doesn't count.

However, you could make a somewhat similar argument for Manugistics. Not that the company had a bad year, but it's coming off such a small base that anything less than rapid growth would be a failure. Most of Manugistics' rivals are bigger, so they will grow more slowly--law of large numbers and all that.

Wall Street is aware of these things, which is why it's hard to accept that Manugistics is considered almost twice as valuable as its nearest peer stock. Yes, Manugistics has produced strong numbers for the last several quarters. Yes, supply-chain management software is one of the few technology products that continues to be valuable in an economic recession.

But the current stock price of Manugistics is hardly anything to complain about. Today's action is bringing the shares of Manugistics a little closer to the pack, but they're still flying way ahead of everyone else. It's still much higher than everyone else in its group, even though Manugistics isn't the only supply-chain software vendor out there, isn't the only enterprise-applications firm to recently suggest continued strong demand and isn't that much better than the others.22GO>