2HRS2GO: Verity finds its stride

Verity more than doubled the consensus estimate in its fourth quarter Tuesday, sending the stock up 3 7/16 to 45 7/16. At this point, the future looks bright for the maker of information retrieval and management software.

In the quarter, Verity pocketed $11.6 million, or 32 cents a share, on sales of $30.4 million.

Analysts were looking for a profit of 15 cents a share in the quarter.

Anytime a company doubles the Street estimate, you can expect a flurry of upgrades and revenue revisions.

Surprisingly, only Banc of America Securities analyst Greg Vogel bothered to upgrade the stock, bumping it from a "buy" to a "strong buy" recommendation while setting a 12-month price target of $72 a share.

Vogel said the outlook for the company was "better than ever," and anticipates sales to accelerate in the second half of the year. He also pointed out that Verity was actively expanding its direct sales force to capitalize on this red-hot market.

This week's stock run-up and stellar earnings report mark a dramatic improvement from the brutal abuse this stock took in late March and most of April.

Most likely, Verity's steep decline from a 52-week high of 63 3/4 to around 25 was a case of technology investors indiscriminately unloading technology stocks. Anyone who has been paying attention knows that software that helps Internet companies and users find and manage the deluge of online information will always be in demand.

Compared to competitors such as Hummingbird (Nasdaq: HUMC) and FileNet (Nasdaq: FILE), Verity shares have been surprisingly resilient.

Yet after Wednesday's upgrade, six of the seven analysts tracking the stock rate it either a "buy" or "strong buy" while one analyst rates it a "hold."

One has to wonder what that analyst is thinking in light of Verity's recent performance and its rosy outlook. It surely can't be a valuation concern with the stock perched at a price-to-earnings ratio of 44.

Looking at the fourth-quarter numbers, it's easy to see why Vogel and Verity investors are so excited about the stock.

The $30.4 million in sales represents a 58 percent improvement from the year-ago quarter when it earned $5 million, or 17 cents a share, on sales of $19.3 million.

For the fiscal year, Verity pocketed $30.4 million, or 87 cents a share, on sales of $96.1 million compared to a profit of $12.1 million, or 44 cents a share, in fiscal 1999.

Including income tax gains, Verity made $14.2 million, or 39 cents a share.

"Throughout fiscal 2000, we continued to emphasize sustained growth and profitability," said CEO Gary Sbona in a prepared release. "We anticipate continued success based upon the momentum that we have achieved and the initiatives we are currently executing and we will aggressively pursue our responsibility of maximizing long-term shareholder value."

Not to throw cold water on such a strong performance, but company officials said its fourth-quarter earnings would have been about 19 cents as share using new accounting rules that will be in effect next quarter.

Regardless, its hard to hold much against a company that counts BroadVision (Nasdaq: BVSN), SAP (NYSE: SAP), Adobe Systems (Nasdaq: ADBE) and Lotus among its top corporate clients.

Analysts are expecting it to turn a profit of 13 cents a share in its first quarter and 63 cents a share in fiscal 2000, estimates that Vogel believes it will have little difficulty topping.

Investors looking for a solid Internet-related stock that actually makes money and has a reasonable valuation should take a closer look at Verity.