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Street favors J.D. Edwards

J.D. Edwards is quickly replacing SAP and PeopleSoft as the enterprise software darling of Wall Street.

J.D. Edwards is quickly replacing SAP and PeopleSoft as the enterprise software darling of Wall Street.

A year after its initial public offering, the firm is maintaining good standing in the eyes of investors even as the entire enterprise resource planning market takes a hit. Strong growth in both software and services revenues are expected to continue as the company moves into 1999.

Investment analysts downgraded ERP stock across the board last month, including J.D. Edwards, which caused a crash in stock prices for the market.

And while Denver-based J.D. Edwards was also caught up in ERP Black Friday in early October, it remains a favorite of many Wall Street firms.

For example, BT Alex Brown is bullish on the company for the long haul, much more so than some of its competitors.

"We believe Baan, PeopleSoft, and SAP are vulnerable to downside earnings risk as customers downsize, delay, and/or cancel orders due to tougher business conditions," said BT Alex Brown analyst James Moore in a recent report. "We still regard J.D. Edwards as a 'Buy' based on its strong earnings visibility, ability to fly below SAP's radar and focus on the faster growing middle market."

And J.D. Edwards executives said they plan to continue steering their company on its current flight pattern sticking to its core market and expanding its product to handle Windows NT and Unix alongside its traditional AS/400 platform, which is highly popular in the middle market.

It would be easy for the firm with its current momentum to start courting bigger accounts, and shoot to become one of the big boys playing the Fortune 500 game with huge enterprise level sales. But J.D. Edwards' chief financial officer Rick Allen, said that is not in his firm's plans.

"Day in and day out our focus is on the $100 million to $2 billion company and the divisions and subsidiaries of global 1000 firms," Allen said. "We continue to be optimistic and we are doing deals with big companies but that is not our bread and butter."

Similarly, while other vendors are building, buying, or have developed front office applications for sales force, marketing, and customer service management that can be sold as independent products, J.D. Edwards is not. It has built some front office functionality into its product, but Allen said his firm has no intention of using the front office applications as anything but additional features to its traditional back office system.

"It's a great opportunity to extend the supply chain for our customers," Allen said. "It's a good opportunity to sell products back to our installed base. But it is not a good fit for our strategy to sell it independently. It is a far better strategy for us to keep it integrated with the rest of our system."

However, while J.D. Edwards is planning on keeping its front office offering close to home, it is also entering the field very late which could be a hindrance in the long run. Also adding to its trouble is that J.D. Edwards is trying to build all the functionality itself, relying on customer comments for help in what functionality to include in the product. Most of the other vendors bought another company for the product or functionality and boosted its knowledge level tremendously.

"If J.D. Edwards is to maintain pace as a market leader and round out its offering, then the company should consider acquiring the domain expertise or formally partnering with a leading customer relationship management vendor," said a recent report by analyst firm AMR Research in Boston. "However, if the past is any indication, then J.D. Edwards' focus on quality, customer satisfaction, and consistency in its product development will prove once again that it is not always the hare that wins the race."

But it does seem poised to win the race for meeting Wall Street expectations, or at least tying for a top sport. Allen said he is comfortable that his company will attain the 34 cents a share that financial analysts estimate its stocks will garner for the quarter.

He is also confident that J.D. Edwards will weather global economic problems well that are currently plaguing other vendors. Asia and Latin America, two economically ailing regions of the world, account for only about 5 percent each of J.D. Edwards' business at the moment. Most of the firm's sales are in Europe, 22 percent, and in North America, about 68 percent.