BMC tumbles on warning, downgrades

BMC Software shares fell 17 percent Wednesday following its fourth-quarter earnings report the day before. Though the company topped estimates, it lowered its outlook for the first quarter and full year.

Analysts said the company was simply delivering too little too late, and downgraded the stock.

Shares in the maker of software for mainframes and client-server systems were off $4.55 to $22.60.

BMC Software (NYSE: BMC) announced late Tuesday that it had topped earnings estimates. It reported earnings of 26 cents a share on revenue of $422.8 million. First Call consensus projected earnings of 24 cents a share on revenue of $416 million.

But the company also warned that revenue for 2002 will be about $1.68 billion to $1.73 billion. First Call consensus was predicting 2002 revenue of $1.73 billion. It also guided investors to expect first-quarter earnings of 11 cents to 14 cents a share, on revenue of $355 million to $365 million. Analysts had been calling for a first-quarter profit of 24 cents per share on revenue of $410.5 million.

SG Cowen Securities analyst Drew Brosseau cut the stock to "neutral" from "buy" on the news. The company's earnings in 2002 are just "too little, too late," the analyst wrote.

"Management's first official guidance for fiscal 2002 suggests that growth may take longer to appear than we thought and that spending will be higher than expected," Brosseau said.

BMC, which sells mainframe software, has seen a rebound in its shares as IBM has introduced new mainframes.

The stock is pricey relative to earnings estimates, the analyst noted, especially after its rebound since last summer's lows. "We'd either wait for more positive fundamentals or look for better opportunities around $20," Brosseau said.

Merrill Lynch analyst Peter Goldmacher also reduced his rating to "neutral" from "accumulate," and said the company's decision to alter its sales and licensing model in the midst of an IT spending slowdown adds to risks and the probability that its outlook could get worse.

"We continue to look favorably on the long-term prospects for BMC, but consider the current risk/reward ratio to be unfavorable," Goldmacher wrote.

Lehman Brothers Neil Herman was more positive on the stock. He maintained a "market perform" rating on the stock and called the company's outlook "decent."

J .P. Morgan analyst Chris Galvin also sounded a positive note. The analyst maintained his "long-term buy" rating while lowering fiscal 2002 estimates.

Galvin was upbeat on the increase in deferred revenue for BMC. Management commented on the call that they are booking an increasing amount of revenue deferred over multiple periods, and that BMC should book an additional $80 million to $110 million in deferred revenue in fiscal 2002 because of the change.