NEWS ARTICLE (analysts' thoughts):
Friday January 21, 1:04 pm Eastern Time
worldlyinvestor.com Region of the Day
Evaluating a Pivotal Software Stock
By Norm Barnett, Special to worldlyinvestor.com
Pivotal blows past expectations and just keeps going.
The rise of Pivotal (Nasdaq:PVTL - news) since its initial public offering last summer has made it one of the biggest software companies in
Canada by market capitalization. Despite that, some analysts say there may still be some room for investors to catch the company's updraft.
Pivotal's story started quietly enough last August when it made its entrance on the Nasdaq. Shares began trading at $12 and most analysts
pegged the company for a slow but steady rise.
When Cameron Steeles, an analyst at Dain Rauscher Wessels, began covering the company six months ago, he set a modest goal of $25 per
share as his 12-month price target for the shares. The same week, Merrill Lynch said it was taking an even more conservative stance with the
company, only rating it a ``long-term buy.'
By the time October rolled around, the stock had already broken the $20 threshold. When Ed Bierdeman, an analyst with Moors & Cabot, put
out his first report on the company Oct. 13, he said he was looking for a one-year price target of $38.
Less than two weeks later the company announced its product would be marketed as part of a Microsoft (Nasdaq:MSFT - news) and Cisco
Systems (Nasdaq:CSCO - news) Internet venture. The stock jumped $12 in a day and all previous estimates were out the window.
A No-Brainer
Carl Hoyt, a partner with Cypress Capital Management, says that in hindsight it was something of a no-brainer to figure the company would do
well, since it was a real contender in a hot part of the market. Pivotal makes and sells customer relationship software. ``When it first hit the
market we felt the valuations it received were not in line with others in the (software sector). This is a real leading-edge company with a strong
product.'
The software allows companies to track and manage a customer's relationship with a company from the day first contact is made right through
to a sale made five minutes ago. But it is especially designed for eBusiness and business-to-business operations. The goal of Pivotal's
software is to let customers, suppliers, employees and business partners use the web to manage the relationship.
At the time of the IPO, Dain Rauscher Wessels' Steeles said the company had strong and diverse revenue and distribution channels, and that it
was part of ``a dramatic growth cycle' for the whole software sector. As traditional businesses increase their electronic exposure and more
companies go completely digital, there will be an increasingly need to enhance the speed and organization of customer management.
Investor Interest Perks Up
By the end of November, investors had begun to take a keen interest in the company, pushing the stock price into the $40 range. Then on Dec.
7, Pivotal announced it would acquire Transitif, its main European distributor, and that it had also signed two key European contracts. The
news pushed shares up $10 on the day, past the $50 plateau.
Measured by market capitalization, Pivotal was now the third-largest Canadian software company behind Geac Computer (OTC:GEACF - news)
and Cognos (Nasdaq:COGN - news) Not bad for a company that has yet to turn a profit.
Steeles now has a $75 price target on the company. ``I had to revise (my previous target) because they really blew past the last one so quickly.
But, even at these levels the fact remains this company is more interesting than its competitors and I think investors also should be adding in
the Internet component that is built into Pivotal's business.'
Cypress Capital isn't buying more Pivotal shares right now, but Hoyt doesn't rule out another jump in price. ``It is really difficult to set
valuations right now,' Hoyt says. ``People just don't know how big e-business is going to be in the near future but certainly the feeling is that
the market is going to be quite big.' |
