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A rosier year for Cambridge Technology?

Industry observers expect investor confidence in Cambridge Technology to begin rallying after a reorganization is completed and delayed consulting work from 1998 is back on track.

Cambridge Technology Partners may be down now, but the company is expected to climb back into Wall Street's favor by midyear.

Overall, industry observers expect investor confidence in Cambridge to begin rallying in the second quarter after a company-wide reorganization is completed and delayed computer consulting work from 1998 is back on track. No layoffs are expected due to the reorganization and employee turnover is now lower than expected, analysts said.

While Lehman Brothers analyst Karl Keirstead said he can't get too positive on the IT services and consulting company yet--as an internal reorganization has slowed new business development and the company's earnings have failed to meet expectations--he is expecting a rosier performance by the end of 1999.

"There's no obvious bull on the street for Cambridge right now," said Keirstead, who downgraded his rating from buy to neutral in November and expects the company to post $164 million in fourth-quarter revenue, slightly more than the company's own expectations of $157 million to $163 million. "In the long-term [services] is a phenomenal sector and Cambridge is one of the premium companies, but yes, they do have their work cut out for them in the next few quarters."

Rating CTP's stock a strong buy, Donaldson, Lufkin, & Jenrette recently named the company a top pick at a 12-month target price of $32 a share. Morgan Stanley Dean Witter, which rates the stock at neutral, said CTP, as well as its rival, Keane, are suffering from low investor confidence. In the December quarter, Cambridge's stock declined 5 percent while Keane's dove 16 percent. For Cambridge, a Morgan Stanley report states, "1999 will be a back-end-loaded year."

If nothing else, it's a good time to pick up the Cambridge, Massachusetts-based company's shares at a cheaper price. Cambridge stock was trading at $25.3 a share today, up from a 52-week low of $13 a share in September and down from a high of $58.

A recent survey found 12 of 22 Wall Street analysts consider CTP a moderate buy, with three naming the stock a strong buy and seven keeping their ratings at hold.

Cambridge's woes began last September after it announced project growth delays and an internal reorganization would cut anticipated third-quarter revenue from an expected 50 percent to between 40 and 45 percent.

The company said its largest customers were delaying anticipated computer projects while they handled critical Year 2000 fixes, which CTP does not specialize in. Following news of lowered growth, estimates for Cambridge's stock immediately plummeted to $13 a share. Analysts also revised their 5-year revenue growth outlook to about 30 percent.

Wall Street expects a weaker than expected fourth quarter as well, with results due out February 4, due to the company's revamped profit estimates, Keirstead said.

Through reorganization of the company's sales and delivery system, Cambridge, which made its mark in the industry by offering fixed-time/fixed price services to customers, is moving away from providing services by geographic region and instead is forming eight specific practice areas.

Cambridge also plans to shift its business toward providing less customized software and more prepackaged services. While the company expects lower growth overall, its division that integrates software for front-office vendors including Vantive and Clarify, is growing at more than 50 percent a year, representing a quarter of the company's revenues. Cambridge's Web consulting and services unit, which represents up to 15 percent of revenues, is also growing rapidly.