Compuware slides following decent 3Q earnings

Compuware (Nasdaq: CPWR) shares fell 4 5/16, or 16 percent, to 22 3/16 Tuesday, one day after the business software developer topped analysts' estimates by 2 cents a share in its third quarter.

After market close Monday, Compuware reported fiscal third quarter earnings of $133.4 million, or 35 cents per share, excluding special charges and writedowns. First Call's survey of a dozen analysts predicted a profit of 33 cents per share.

Earlier this month, Compuware said it would report third quarter profits that would meet or beat the consensus estimate. Including writedowns and one-time events, Compuware earned 32 cents per share.

Third quarter revenue rose to $637.4 million, or 47.2 percent gain year-over-year.

On Tuesday, PaineWebber analyst Kevin Buttigieg cut his price target to $32 a share from $41, but lifted his earnings per share estimate for 2000 to $1.28 a share from $1.26. He holds a "neutral" rating on the stock.

In a research note, Buttigieg said the results were "of even lower quality than we thought." He said the company is dogged by a sharp increase in receivables and the poor performing services business.

Goldman Sachs analyst Anne Meisner cut her 2000 EPS estimate to $1.19 a share from $1.24, and lowered her 2001 EPS estimate to $1.47 a share from $1.62. She maintains a "market outperform" rating.

In the third quarter, license fees improved 33.8 percent over the same period to $250.5 million. Maintenance fees grew 30 percent to $113.8 million and services revenue gained 72.5 percent to $273 million.

Not everything was rosy, as services margins of 2 percent were lower than expected. "We attribute this to the increased focus we are placing on retraining our professional services personnel and the reluctance of clients to start new projects prior to the end of the year," said Beth Chappell, executive vice-president of Compuware.

The company said it would avoid layoffs by retraining services employees at a faster rate so they could work on e-commerce projects. Compuware said it saw more than $100 million in revenue from e-commerce work in the third quarter.

Software upgrade revenues also disappointed, because customers avoided system changes before the end of the calendar year, Chappell said.

"We believe this was an anomaly and expect software upgrade revenues to return to appropriate levels this quarter," she said. Among 16 analysts polled by Zack's Investment Research, nine maintain the equivalent of "moderate buy" ratings on Compuware, five recommend it as a "strong buy", and two have "hold" advisories on the stock.>