SWRX--Raymond James comments. A real Opportunity imo. Today was a major overreaction.
* Softworks pre-announced 1999 second quarter results below our estimates.For the quarter, the company expects to report an operating loss of $0.02. The reason for the shortfall is the specific number of deals expected, eight to 10, did not close before the quarter's end.
* However, most of the deals have subsequently closed during the first few weeks of the third quarter. Equally noteworthy is the fact that none of the deals were held up or lost due to competitiveissues.
* Lastly, and perhaps most important, we are leaving our annual estimates for EPS and revenue unchanged, as we expect the company to make up the second quarter shortfall in the third and fourth quarter of 1999. For this reason, we are leaving our BUY (1) rating and $18 target price unchanged. Furthermore, we encourage investors to use the impending weakness to add to positions.
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We maintain a rating of BUY (1) on shares of Softworks with a target price of $18. Our target price is based on the stock achieving a multiple of 30 times our 2000 EPS estimate of $0.60. Our multiple assumption represents a 14% discount to the company's estimated three-year growth rate of 35%.
Additionally, our BUY (1) rating is reinforced by outstanding revenue and EPS growth, strong market position, broad product portfolio, large market opportunity, and strong competitive position. Although the shares of Softworks have traded down as low as $3.13 from their $7 IPO pricing, we remain confident in the company's long-term outlook, competitive position,and productstrategy.
Softworks pre-announced disappointing 1999 second quarter results. For the quarter, the company expects to report an operating loss of $0.02 per
share and revenue of $11.5 million versus our EPS estimate of $0.04 and revenue of $12.8 million. The reason for the shortfall is sales execution. A number of large deals that were expected to be signed by the quarter's end were not. However, despite the quarter's shortfall, we are
leaving our BUY (1) investment rating and 12-month target price of $18, as well as our annual estimates for revenue and EPS, unchanged. Below we provide further details about the quarter.
Quarterly Shortfall
As written above, the quarterly shortfall was due to execution. A number
of large deals that had been expected to close did not. The reason for
the deals not closing was nothing more than a lack of sales management.
In each case, the product had been approved and accepted by the customer,
and installed by Softworks. These are important points. There were no
situations where a competitor came in and took business away from the
company. The deal was there; Softworks just did not execute.
Revenue and EPS Estimates
Despite the earnings shortfall in the second quarter of 1999, we are not
changing our annual EPS or revenue estimates for 1999 or 2000. In fact,
we are raising our third and fourth quarter projections for 1999 to offset
the second quarter shortfall. On the earnings per share line, we are
estimating $0.14 for the third quarter and $0.29 for the fourth quarter.
Prior EPS estimates were $0.10 and $0.27, respectively. On the revenue
line, our full year 1999 total revenue estimate remains $61.3 million.
For 2000, our EPS estimate remains $.60. |
