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CA up on CEO's bullish comments

Computer Associates shares spike after Charles Wang assures investors that the company's core business and financial fundamentals remain strong.

Computer Associates shares are up today after chief executive Charles Wang spoke at the annual shareholders meeting and assured investors that the company's core business and financial fundamentals remain strong.

CA is battling its way back from a one-day, 31 percent drop in its stock price last month, which followed the company's disclosure that revenues from its mainframe customers may soften as some clients encounter problems from the economic turmoil in Asia, Year 2000 bugs, and the current upgrade cycle for mainframe computers.

Shares of CA climbed as high as 6.4 percent in early trading today before retreating somewhat to close at 38.4375, up 1.625 or 4.41 percent. Yesterday the stock closed at 36.8125. CA shares had traded above 60 before the company released its cautionary statement.

The jump followed Wang's warning to shareholders that CA's high-end multinational clients, for whom these problems are most prevalent, may not contribute as much revenue to the company as they had in the past.

"That's the reason we added our cautionary statement when we released results for the first quarter. At the same time, we have repeatedly re-emphasized that our core business and fundamentals remain strong," Wang told shareholders today. "So, from where we sit, given what we know about our business, its fundamentals, and future prospects, I think Wall Street has been extremely nearsighted and unfair in its reaction."

Wang added that CA's Unicenter and mainframe businesses still are solid, and noted that the company's cash flow is strong, with over $1 billion generated from operations last year.

Chris Mortenson, an analyst with BT Alex Brown, agreed with Wang that the correction in CA's stock was "overdone."

Mortenson, who maintained his "buy" rating on the stock, said CA has demonstrated in the past it can maneuver effectively through troubled waters.

"In the December quarter of 1996, [CA] had a very weak quarter in Europe and their stock got clobbered," Mortenson said. "But they did such a good job in North America that it compensated for some of their business in Europe, and they later got things back on track."

He added that CA may be able to pull a similar feat once again, by concentrating on other parts of its business in an effort to compensate for lost revenues related to the toll the Asian flu has taken on its high-end clients.

But the company has other problems to focus on as well. For example, it has been hit with shareholder lawsuits alleging that some of its executives and directors made misleading and false statements about demand for its products, the condition of its business, and the effect the Asian economic crisis has had on its operations.

During today's shareholder meeting, Wang defended his company's performance, as well as a stock option grant given to three executives, including him.

Under the terms of the company's 1995 stock policy, the executives would receive $1.1 billion in CA stock if the shares exceeded $53.33 for at least a 60-day period. The target was hit and the executives were awarded their stock--prior to the company's warning of the risks its high-end customers faced.

"The plan was designed in 1994 and approved by 80 percent of the shareholders in 1995," Wang said. "Its purpose was to align the interests of management with those of shareholders on a long-term basis, and when I mean long, I mean as long as 12 years."

He added that the grant prohibits the executives from selling or divesting more than 5 percent of the stock over the course of seven years.

Mortenson, for his part, remained unconvinced that the grant was appropriate. "The shareholders approved the grant. But any number that begins with a billion is a little big," he said. "If some asks me how did [CA stock] do, I would say, 'a good job.' But if someone asks me if it was worth a billion dollars, I might say, '[the grant is] a little big.' "