JP Morgan analyst Sterling Auty predicted that the stock would reach $44 in twelve months and initiated coverage of the shares with a "buy" rating.
Compuware shares gained $3.13 to $23.56 by the 1 p.m. PST close of regular trading. Earlier in the day the shares reached $26. Nearly 30 million shares changed hands, more than four times its daily average for the past 50 days.
Auty said that the company, which builds, tests and manages software for mainframe computers, would experience annual revenue growth of up to 35 percent through 2002 as large companies expand into e-commerce and seek Compuware's services. According to Auty, companies spent $1.7 billion on e-commerce applications in 1999, a figure that should surge to $13 billion by 2003.
More than $1 billion of Compuware's $1.68 billion in revenue last year came from software licensing and maintenance fees, a trend that Auty and others predict will continue.
"The company has a business model mix of products and services that most big software companies will evolve toward, and even at $24, the stock is cheap," said analyst Damian Rinaldi of First Albany Securities.
Auty's report also stated that the company experiences relatively little competition in some parts of its mainframe software and maintenance business, which is Compuware's major revenue-generator.
"Revenue from Compuware's mainframe interactive debugging, fault management, and file and data management product lines represent over 40 percent of the total. And, more important, they face little competition," he stated.
Rinaldi agreed with that assessment, adding that "the company is by far the dominant player in its chosen markets."
Compuware's price-earnings ratio is about 22, which is lower than some competitors. Oracle and BMC Software currently trade at price-earnings ratios of about 126 and 30, respectively.
Auty concluded that the company "presents one of the few opportunities for value investors to participate in the fast-growing e-commerce market."