NESY--key article from Dow Jones passed on to me
<<NEW YORK -- Neon Systems Inc. (NESY) preannounced fiscal second-quarter results just before Tuesday's opening bell, and its shares took a double-digit drop for the second straight day.
But the sell-off seems proportionally more dramatic than the shortfall.
The enterprise access and integration software company, which had fiscal 1999 revenue of $20 million, said it expects to report revenue of $6 million and earnings of 7 cents to 8 cents a share for the second quarter ended Sept. 30. First Call/Thomson Financial's consensus earnings estimate was 8 cents.
Chief Financial Officer John Reiland attributed the $300,000 shortfall in quarterly revenue to the dollar volume of contracts that did not close, which he said was slightly higher than usual. The September quarter is generally the most difficult for software sales, he added.
Neon Systems shares recently traded at 21 1/2, down 5 1/2, or 20.4%, after earlier dipping to 20. Volume was 958,000, compared with a daily average of 38,600.
The drop in stock price didn't faze analysts.
"Any time there's a disappointment for a high growth company with a high multiple, you're bound to see a sell-off," said Joseph Farley of Donaldson Lufkin & Jenrette Securities Corp.
CIBC World Markets Corp.'s Chris Galvin concurred. "This is a company that was doing real well," he said, "so any slight variant from expectations has a meaningful impact on the stock."
Both analysts are maintaining their buy ratings on the stock.
"We think we'll make up for this shortfall in the coming quarters," said Farley, who has a $60 price target on Neon Systems. "The long term for this business remains very strong."
Farley said the company's products continue to lead the industry.
He sees earnings at 14 cents a share for the third quarter, 47 cents for fiscal 2000, and 73 cents for 2001.
Galvin's earnings estimates are similar: 15 cents for the third quarter, 46 cents for fiscal 2000 and 72 cents for 2001. The company, which went public in March, reported fiscal 1999 earnings of 30 cents....>>
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