Services push CA earnings

Computer Associates continues to chug ahead, fueled by an increasingly strong growth in its services and consulting business.

2 min read
Computer Associates continues to chug ahead, fueled by an increasingly strong growth in its services and consulting business.

Shares in Islandia, New York-based CA climbed 3 points to 47 in early trading today after analysts boosted their ratings and lifted their price targets on the business software and services provider, following its strong fourth-quarter results.

CA said for the fourth-quarter its professional services revenue increased 121 percent to $93 million Overall, the company said its revenue for the quarter increased 11 percent to $1.6 billion from $1.5 billion in the comparable quarter a year earlier.

Last November, CA chief executive Charles Wang predicted service revenue would double by late March. CA said its client/server revenue jumped to $802 million from $640 million for the fourth quarter.

CA has been on a recent acquisition spree in an effort to expand its services unit. Earlier this week, the company said in a statement that it got permission from the Justice Department to complete its $3.5 billion acquisition of Platinum Technology. Once complete, CA said the acquisition would complement its software and services in areas including e-commerce, business and data modeling, data warehousing, enterprise management, and application development.

Analysts at BT Alex Brown raised their fiscal 2000 earnings estimates to $2.75 a share to revenue of $6.9 billion. In research notes, BT Alex Brown analysts said that with the help of CA's acquisition of Platinum Technology, which CA said it plans to complete shortly, they expect earnings growth to accelerate, especially in the next year.

BT Alex Brown analysts also reiterated a "buy" rating on the company's stock and noted that the stock is attractively valued.

Analysts at CIBC World Markets, CE Unterberg Towbin, and Prudential Securities all upped their 12-month price targets following the announcement of the company's healthy fourth quarter.

CIBC raised CA's rating to a "strong buy" from "hold" and increased the price target to $58 a share. CE Unterberg reiterated a long-term "buy" and set a 12-month target of $50 a share. Prudential raised the price target for CA to $50 from $45 a share.

After yesterday's market close, CA reported fourth-quarter results, a penny ahead of analysts' expectations backed by strong revenue growth.

For the quarter, the company said net income was $457.9 million, or 83 cents a share, vs. $422.7 million, or 75 cents in its year-ago period.

While shares of other software makers such as Oracle and PeopleSoft have recently slumped after they warned that sales have slowed in part because corporate customers are focusing on fixing Y2K-related issues, CA, instead tried to help its business by expanding its services unit through the acquisitions, Bloomberg reported.

Along with its pending acquisition of Platinum, CA has recently acquired services firm Computer Sciences and Norwegian software maker Aventura Systems as well as invested $50 million in CHS Electronics, a computer and network distributor.