PeopleSoft falls despite strong quarter

PeopleSoft (Nasdaq: PSFT) shed 10 percent Wednesday, despite praise from some analysts following the company's report of better-than-expected fourth quarter.

A bearish report from Morgan Stanley said the stock was likely to stay stagnant in the near-term.

Shares in the maker of enterprise software were off $5.03 to $43.91 on Wednesday morning. The stock has risen 31 percent since the year began.

PeopleSoft announced financial results after market close Tuesday, beating estimates on the top and bottom line. The company stuck to its earlier revenue and earnings forecasts for 2001, perhaps disappointing observers who were hoping the company would raise expectations.

First Call consensus currently predicts PeopleSoft will earn 58 cents per share on revenue of $2.06 billion.

However, Morgan Stanley analyst Charles E. Phillips downgraded the stock from "outperform" to "neutral". Phillips said the downgrade was based on share price, and an expectation that revenue growth this year is unlikely to match the company's impressive pace of the last six months.

The company's planned reduction in deferred revenue throughout the year reduces top line visibility, and "quite possibly, the multiple on the stock," Phillips said.

The analyst praised management for doing an excellent job in reviving the company, but said that in this transition phase, comparisons are tougher, income from its Momentum subsidiary is declining, and margins will likely improve slower than expected.

Other analysts were extremely optimistic on the stock.

Lehman Brothers analyst Neil Herman reiterated a "strong buy" rating on the stock, and upped his target price to $60 from $55 a share.

"We believe potential investor concerns over the modest upward revision to EPS guidance are unwarranted as we believe this cautious up-tick is a reflection of macro-economic concerns," the analyst cautioned.

Herman praised the company's strong demand. He left his already well-above-consensus earnings estimates for 2001 unchanged, but said he believes PeopleSoft could top his published expectations for the next two years.

Goldman Sachs analyst Steven Kahl maintained a "market outperformer" rating and raised 2001 estimates slightly. His only caution was that better visibility was needed on the higher growth segments to sustain longer term growth rates.