New Era falls with downgrades; Goldman drops coverage
Analyst reports for the software maker are anything but glowing after the company warned late Friday that it will miss analyst's sales estimates by $18 million and post a huge fourth-quarter loss.
Some brokerages lowered ratings, while Goldman Sachs gave up on the stock entirely. Shares in the e-business software and consulting company plunged 40 percent, or $2.25, to $3.25 in morning trading Monday.
The company said it would not make top- or bottom-line estimates for its fourth quarter, citing its inability to close several large deals within weeks of the quarter's end because of customers' shrinking IT budgets. It also didn't give clear guidance on 2001, causing analysts to suspend estimates.
New Era said it expects to record restructuring costs this quarter to match expenses with the slowdown in revenue growth. Details and new guidance will be provided Jan. 23, the company said.
Goldman Sachs analyst Anne M. Meisner dropped coverage of the stock entirely "as part of an effort to streamline...research focus in the infrastructure software space," she said in a statement.
Bear Stearns analyst Rich Scocozza downgraded the company to "neutral" from "buy" and put estimates under review.
"During a conference call, NEON refused to give much guidance as to what the prospects for 2001 look like," he said.
Scocozza also noted that customers are starting to become uncomfortable buying technology from anybody but the largest vendors, including BEA Systems and Tibco.
Prudential Securities analyst David Breiner maintained his "hold" rating on the stock and said the company's warning and lack of visibility indicate "execution problems in the business."
He expects forward guidance in the company's Jan. 23 report to "offer limited value, as we suspect the lack of visibility will persist."
SG Cowen Securities analyst Rehan Syed, who maintained his "neutral" rating on the stock, said the company is in deeper trouble than other companies like Vitria, Talarian and Inktomi.
"NEON saw softness across the board, not just in the telecommunications vertical, which had been the cause of misses by" its competitors, Syed said in a report.
Syed anticipates that the restructuring will include staff and facilities reductions. "This is a steep reduction from the earlier cash (earnings per share) guidance of 50 cents," he added.
Syed noted that New Era trades at the same level as its calendar year 2001 revenue, with over $1 per share in cash, which is historically cheap vs. other software companies that have stumbled in the past. He said this suggests the downside may be limited, but only if the company is able to meet its 2001 plan for breaking even and conserve cash.
Syed also noted the fact that a large portion of the company's revenue stems from deals made with companies that New Era has equity investments in. These non-monetary transactions have nothing to do with the company's miss this quarter but could be bad news for balance sheets, Syed wrote.